Public Bill Committee

[Mr. Peter Atkinson in the Chair]

(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92) - Schedule 3

VAT: supplementary charge and orders changing rate

Amendment moved (this day): 5, in schedule 3, page 75, line 7, at end insert
(10) Paragraphs 2(3) and (4) shall not apply where the supplier can demonstrate that the terms of its contract does not permit additional VAT to be charged (i.e. if the contract provides otherwise for the purposes of paragraph 21(2) of this Schedule) and that at the time the contract was entered into the supplier had no intention or knowledge that it would become connected with the person to whom the supply is made..(Mr. Gauke.)

Peter Atkinson: I remind the Committee that with this we are taking the following: amendment 6, in schedule 3, page 77, line 8, after persons), insert save for section 839(5)(b).
Amendment 7, in schedule 3, page 77, line 19, at end insert
(c) may only apply to supplies made after the date of such order or where supplies have been contracted to be made prior to such order and the contract allows for additional consideration to be paid.

David Gauke: It is a pleasure to welcome you back to the Chair, Mr. Atkinson. As I am sure you would expect, Sir Nicholas Winterton kept us in order this morning in his inimitable way, but we are delighted to see you back.
As I stated this morning, and as Sir Nicholas pointed out, we debated clause 9, which deals with the temporary cut in VAT from 17.5 per cent. to 15 per cent., on the Floor of the House, and I have no intention of running through all those arguments again. I will merely add that those of us who were concerned about the state of the public finances take no reassurance from this mornings news that public sector net borrowing has increased substantially for April and is at record levels, and that the ratings agency Standard and Poors has revised its outlook for the UK to negative, due to borrowing concerns. The agency has said that Britains triple A rating for its Government bonds was at risk if the next Government did not produce a credible plan to put Government debt on a secure downward trajectory. Our concerns about a discretionary fiscal stimulus appear to be further vindicated.

Stephen Timms: The hon. Gentleman will know that Standard and Poors has reaffirmed the triple A rating for the UK, but has he also seen that, since the publication of the Standard and Poors view, both Moodys and Fitch Ratings have also reaffirmed their view of a stable outlook for their triple A rating? Standard and Poors is on its own on that.

David Gauke: I am grateful for that intervention; none the less, the announcement from Standard and Poors this morning is a timely warning that the public finances are in a perilous state and that the current level of borrowing is clearly unsustainable. I know that you do not want me to dwell on whether the VAT cut was wise, Mr. Atkinson, so I will turn to schedule 3.
Given the changes in VAT and the fact that it will return to 17.5 per cent. on 1 January, we accept that the Governments concern about potential forestalling and their desire to prevent the advancing of the time of supply on standard rated supplies are legitimate. Consequently, and given where we are, we have no objections to the measures in schedule 3, as they are perfectly reasonable.
However, the Law Society has brought a couple of concerns to our attention, and it might help the Committee if I outline them. We have sought to bring the Committees attention to those concerns by tabling amendments 5, 6 and 7. If the anti-forestalling provisions in schedule 3 are to apply, certain conditions that need to be fulfilled, which are set out in paragraph 2. The first condition is that
the supplier and the person to whom the supply is made are connected.
The second condition is that the relevant considerations come to more than £100,000. The third condition is that
a prepayment in respect of the supply is financed by the supplier or a person connected with the supplier
I am simplifying the matter a little, but that probably serves the purposes of the Committee. The Law Societys concern relates to condition A. It says that the test of connection, already wide, has been extended by a recent case, Kellock Brown. Indeed, the society has raised the possibility that some banks in partial public ownership and indeed, the state may be connected for the purposes of the test. I will be grateful if the Minister can respond to that point.
There may be a danger of condition A applying more broadly than is intended. Our amendments are intended to solve the potential problem of the provision applying where the supplier had no intention or knowledge that they would become connected to the person to whom the supply is madepeople may find themselves caught up in the provisions when that was not the intention. We tabled amendments 5 and 6 to highlight that issue and obtain the Governments response.
Our second concern relates to paragraph 10 of the schedule. Our first point is that we are back in the era of Henry VIII clauses, in that it will be possible to amend primary legislation by order. That is something about which, traditionally, the House as a whole has always been concerned. Those of us who served on the Committee on the Banking Bill will remember similar concerns being expressed, and the Economic Secretary and I debated Henry VIII clauses at some length. There is recognition of the potential problem with parliamentary scrutiny arising from any Henry VIII clause. In the case of the Banking Bill, the Minister set out his reasons for why there might be a need to amend legislation to deal with particular casesindeed, if I recall correctly, that section of the Banking Act 2009 is now being used quite extensively in relation to the rescue of Dunfermline building society. The use of Henry VIII clauses is, none the less, a concern that hon. Members on both sides of that Public Bill Committee raised, and I raise it again here.
The second element of concern about paragraph 10 is that there is nothing in the paragraph that would prevent the Treasury from making an order that is, to some extent, retrospectivenothing that would prevent an order from applying to a supply that occurred before the date of the order. That concern was also raised by the Law Society, which we attempt to address in amendment 7, which provides that any order made under paragraph 10 should apply only to supplies made after the date of the order, or where there is a contractual provision enabling it to be varied subsequently. We think that that answers the concern. It may well be that the Government would not, in any circumstances, use the order in a retrospective manner, and we would welcome an assurance to that effect. Otherwise, I would be grateful if the Minister outlined the circumstances in which the Government would make an order that was not in compliance with amendment 7. That would be helpful to the Committee.
Subject to those technical points, we have no particular objections to schedule 3, for the reasons that I outlined earlier. However, we think that we have expressed legitimate concerns that we hope the Minister will be able to answer, perhaps by accepting the amendments.

Jeremy Browne: I shall not speak at length, Mr. Atkinson, because the points that I had wished to make were either made in detail in the main Chamber of the House, or made a few moments ago by the hon. Member for South-West Hertfordshire.
My party also did not approve of the temporary VAT cut. We did approve of a fiscal stimulus, but we thought that the money could be better spent than on a reduction in sales tax. That reduction is worth approximately £1 billion a month, depending on what people choose to buy. That is a substantial amount of money, which, as I have said, we felt could have been spent more constructively. Having said that, we are where we are. The Government have implemented that policy of a reduction in sales tax and it seems reasonable to us that the anti-forestalling measures outlined in schedule 3 be put into effect to ensure that people pay the tax that they are expected to pay.
The Conservative amendments strike me as reasonable, but I would be interested to hear the Ministers response to them. He may feel that there are practical difficulties and that the amendments are too loosely defined in their scope. If that is the case, they may not be appropriate. I look forward to hearing what the Minister has to say on those amendments, but my party supports the schedule as a whole.

John Howell: I only have a couple of questions for the Minister. My hon. Friend the Member for South-West Hertfordshire mentioned the concerns of the Law Society. I would like to mention the concerns of the Institute of Chartered Accountants in England and Wales.
Some of the institutes concerns overlap with those of the Law Society, such as the wide definition of connected persons. However, the ICAEW raised another question that is valid to ask here. What is the basis of the assumptions underlying the schedule about the potential scale of abuse? The ICAEW makes a very good point that, without that type of evidence, the nine pages of anti-avoidance legislation that are before us seem a disproportionate response to what is only a 2.5 per cent. adjustment.

Stephen Timms: Welcome back to the Chair of our Committee, Mr. Atkinson.
I am grateful to all the hon. Members who have spoken today to express general support for the measures in the schedule. As we have discussed, the reason for the temporary reduction in VAT was to deliver a fiscal stimulus to the economy in a timely, targeted and temporary way, and that stimulus is working. The hon. Member for South-West Hertfordshire drew attention to some economic news this morning. He may also have noticed the Office for National Statistics retail sales figures published this morning showing continuingindeed, I would say remarkablestrength. Retail sales volume is up 2.6 per cent. on the year. In very stark contrast to what happened to retail sales figures in the last recession, over the past six months retail sales volume has grown by almost 2 per cent. In the last half of 1991, which is a comparable period to now, that figure fell by 2 per cent. So that 4 per cent. difference in retail sales volume over a six-month period is the difference.

Mark Field: Will the Minister give way?

John Howell: Will the Minister give way?

Peter Atkinson: Order. I have extended a certain amount of latitude, but we are in danger of going back over what was said before. Perhaps the Minister could move on to the schedule.

Stephen Timms: I am delighted to do so, Mr. Atkinson.
In introducing a temporary VAT reductionthe benefit has been explainedbusinesses would have advance notice of a rate rise, so they could attempt to arrange their affairs so that they paid VAT at the reduced rate on goods and services provided after the rate goes back up. Hon. Members have rightly acknowledged that that is what the schedule addresses.
To respond to the hon. Member for Henley, on previous occasions when the VAT rate changed, we saw arrangements providing for prepayments of well over £100 million covering future supplies over many years. Recent comments from businesses and tax advisers made it clear that anti-avoidance rules were needed to thwart those arrangements. We estimate that £400 million of revenue could be at risk if such measures are not taken. On 25 November, I announced that legislation effective from that date would be introduced in the Finance Bill to protect the public finances from such artificial avoidance. We intend to stop arrangements designed to avoid payment of tax, but to leave genuine commercial transactions unaffected. I hope that I will be able to persuade the Committee that we have achieved that.

John Howell: Can the Financial Secretary tell us what consultation took place with various professional bodies to ensure that the schedule captures the problems that he wanted to address and is not disproportionate?

Stephen Timms: What the schedule does is enact what I said in my statement of 25 November. Our intentions and approach were set out in that statement. The draft of the schedule was published, I think, a couple of weeks before the Budget, so there has been ample opportunity to respond, and so far, as far as I know, no one has come forward with alternative proposals. Of course, if there were some alternative ideas, we would be interested in seeing them. The schedule contains the distillation of learning from 20 or more years of experience, and I think the judgment has been got right.
We listened to a number of comments that were made and we have made some changes as a result.

David Gauke: Will the Minister give way?

Stephen Timms: Let me just underline this point because it helps to deal with the concerns raised. As a backstop safeguard, there is a power in paragraph 15 of the schedule to remove transactions from the scope of the provision by order, so that unintended effects can quickly be rectified. If someone came forward with a particular kind of perfectly legitimate commercial transaction that would be impeded by the schedule, we could use that power to remove such transactions from the scope of the schedule.

David Gauke: I have a genuine query. The Minister talked about experience in this area. The focus is principally on the return of VAT to 17.5 per cent., but did any problems arise when VAT was reduced from 17.5 per cent. to 15 per cent.? Was there a loss to the Exchequer because the equivalent of that type of provision was not in place at the time?

Stephen Timms: I do not think that there were difficultiescertainly not along the lines referred towhen the rate was reduced. When tax is going to go up, opportunity arises, and there is clearly a benefit for people who can organise their affairs artificially so that they can do the transaction now, rather than after the tax increase. The difficulty arises in cases where the base of the tax is expanded, which is what happened at the end of the 80s when there was quite a lot of forestalling. As I said, some £400 million of revenue could be at risk, and the Committee will accept that we would be negligent if we allowed loopholes to be created, or doors to be opened to avoidance.
Let me pick up the point that the hon. Member for South-West Hertfordshire raised about whether there would be an impact on banks part-owned by the Treasury. We are not aware of any prepayment or similar transactions between the banks now partly in public ownership that could fall within the scope of this legislation, nor is there reason to think that such transactions are likely. His point about connectedness might arise, but there is no transaction that is likely to cause any difficulty and, as I said, if there were we could use paragraph 15 of the schedule to deal with it.
Amendments 5 and 6 would limit the connected parties test in certain circumstances. It would not be difficult to set up prepayment arrangements, particularly between connected parties, to enable large amounts of transactions to escape the effect of the VAT rise. When parties are connected, it is not clear in which circumstances there would be a need for prepayments as opposed to any other method of financing that they might arrange between themselves, so the legislation needs to provide a robust defence against such artificial arrangements. I suggest that the amendments would weaken the protection of the connected parties test and could open the door to avoidance.
Amendment 5 would introduce an intention test into the legislation. I understand the reason and the fairness argument for that, but in practice it would be very difficult to assess intention. For obvious reasons, we cannot be sure that tax avoiders would be wholly frank about their intention if the success of some tax avoidance depended on it. Introducing such a test would create uncertainty for taxpayers and for Her Majestys Revenue and Customs, and the circumstances for which the amendment is designed are unlikely to be common. I hope that the Committee accepts that it would not make sense to introduce uncertainty when the number of transactions is small. In any case, as I have said, the schedule allows transactions to be excluded by order if we come across transactions that would be effective.
Amendment 7, as the hon. Gentleman has set out, prevents retrospective orders from extending the scope of the measure. I think that I can give him the reassurance that he seeks, making the amendment unnecessary. Paragraph 10 does not permit retrospectionit would not be possible. To have the power to amend legislation by order retrospectively, the primary legislation needs to give a power of retrospection which the paragraph does not explicitly give. We do not intend to apply such orders retrospectively. Perhaps the fact that I have said that might help the hon. Gentleman.
I hope that I have covered the issues raised by the three amendments, and that I have persuaded the hon. Gentleman that he can safely withdraw the amendments.

David Gauke: I thank the Financial Secretary for his response. I note his remarks about connectedness and about how amendments 5 and 6 might weaken the provisions, although proponents of the amendments might say they would narrow the provisions. I recognise his point about an intention test resulting in some uncertainty, but the amendments have helped to flesh out the Governments position.
I am also grateful for the right hon. Gentlemans remarks about paragraph 10, for his comments that it is implicit that there is no retrospective right to amend unless the primary legislation allows that, and his assurances that the paragraph will not be used for retrospective purposes. I am still uneasy about such a Henry VIII clause, but the argument that presumably he would makethat it could only apply in narrow circumstancesmay be reasonable here. Consequently, I beg to ask leave to withdraw the amendment.

Amendment by leave withdrawn.

Schedule 3 agreed to.

Clause 10

Thresholds for residential property

Question proposed, That the clause stand part of the Bill.

Peter Atkinson: With this it will be convenient to discuss new clause 3Thresholds for residential property
(1) A land transaction is exempt from the charge to stamp duty land tax if
(a) it is a relevant acquisition of land which consists entirely of residential property,
(b) the relevant chargeable consideration for the transaction is not more than £250,000, and
(c) the purchaser is a first time purchaser.
(2) In paragraph (1)(a) a relevant acquisition of land means an acquisition of a major interest in land other than
(a) the grant of a lease for a term of less than 21 years, or
(b) the assignment of a lease which has less than 21 years to run.
(3) In paragraph (1)(b) the relevant chargeable consideration for the transaction means
(a) the chargeable consideration for the transaction, or
(b) where the transaction is one of a number of linked transactions, the total of the chargeable consideration for all those transactions.
(4) The Treasury shall by regulation define the meaning of first time purchaser..

Ian Pearson: It is a pleasure to serve under your chairmanship this afternoon, Mr. Atkinson, and to make my first contribution to the Committee stage of the 2009 Finance Bill.
On 2 September last year, the Government introduced a one-year stamp duty land tax holiday applicable to all residential purchases worth £175,000 or less. The holiday was introduced at a time of falling house prices and a volume of transactions far below that seen in recent times. The holiday is a short-term measure to support home buyers many of whom, despite falling prices, are finding it harder to enter the housing market. The holiday ensures that more than 60 per cent. of all residential purchases in the UK are currently exempt from stamp duty. Approximately 90,000 transactions have already been exempted from stamp duty over and above those falling below the original £125,000 starting threshold. We expect that a total of 210,000 transactions will be exempted from stamp duty because of the holiday.
Budget 2009 announced an extension of the holiday to 31 December 2009, to coincide with the end of the temporary VAT reduction and provide further support for home buyers. We expect that approximately an extra 60,000 transactions will be exempted from stamp duty as a result of the extension of the holiday. The decision to extend the holiday reflects the continued difficulties facing the housing market since it was introduced in September 2008. For example, transaction volumes are down by two thirds from their peak in mid-2007 and prices have fallen considerably in the last year.
Clause 10 provides for the extension, which should be seen in the context of the other action taken in the Budget to support home owners, home buyers and the housing supply. Those measures include continued support for home owners in difficulty, through maintaining the standard interest rate for support for mortgage interest at 6.08 per cent. for a further six months; support for housing supply through a £600 million fund to stimulate or kick-start development in the short-term and boost capacity in the house building industry for the recovery; and support for home buyers with the extension of HomeBuy Direct and the launch of a guarantee scheme for residential mortgage-backed securities.
Against that, new clause 3 appears to exempt first-time buyers from stamp duty land tax when they purchase a residential property worth £250,000 or less. The Government do not believe that raising the stamp duty land tax starting threshold to £250,000 for first-time buyers would be an effective use of public money. The new clause does not indicate an effective date or give an indication of whether the measure is intended to be permanent. A permanent increase, which I understand is Conservative policy, would cost the Exchequer approximately £290 million in 2010-11, rising to £430 million in 2012-13. A temporary increase in the threshold for first-time buyers, extending only until the end of December this year, would cost £50 million on top of the £340 million cost of the existing holiday.
The Government also estimate that, as a result of the existing stamp duty holiday applying to transactions worth less than £175,000, some 75 per cent. of first-time buyers are already exempt from stamp duty land tax. In addition, on 2 September 2008 we launched HomeBuy Direct, which offers first-time buyers an equity loan of up to 30 per cent. of the value of a new home to assist them in getting on the housing ladder. Budget 2009 announced an expansion in the provision of HomeBuy Direct as part of the wider kick-start housing delivery programme to unlock sites that have stalled. We estimate that the shared equity and shared ownership products being offered as part of that delivery programme, including HomeBuy Direct, will provide approximately 5,000 properties to help first-time buyers get on the property ladder. Given the action that we are already taking, we do not see a need to raise the threshold further specifically for first-time buyers. Existing measures, including the holiday at its current threshold, are a more appropriate and targeted use of public funds.
I should add that new clause 3 does not provide a definition of a first-time buyer. That introduces problems that themselves mean that we cannot accept the amendment. Defining a first-time buyer is not straightforward, and an exemption explicitly for first-time buyers may give rise to new avoidance opportunities. For example, is an individual who has previously purchased a property overseas to be considered a first-time buyer? If such individuals are not to be treated as first-time buyers, the definition of a first-time buyer could be difficult to enforce or open to exploitation.
In light of the difficulties of defining a first-time buyer, the potential avoidance risks and the help that the Government are already offering first-time buyers, raising the stamp duty land tax threshold to £250,000 would not be an effective use of public money. The action that we are taking, as reflected in clause 10, is important.

David Gauke: I welcome the Economic Secretary to his first participation in this years Finance Bill. As he has stated, clause 10 raises the stamp duty threshold from £125,000 to £175,000. More precisely, it extends the existing holiday to 1 January 2010, rather than 2 September 2009. It is not a dishonourable action for the Government to try to help the housing market, so our criticisms are not of the proposals intention. However, I wish to voice a number of concerns before discussing new clause 3.
We must highlight how the policy of a stamp duty holiday emerged. The Sun headline on 5 August read, Brown to scrap stamp duty. It was very clear that the proposal was a personal initiative of the Prime Ministers, and I am sure that the story caused much delight in No. 10 Downing street, if not in No. 11 too. One suspects that Mr. Damian McBride may have been involved in the storys publication, as it was written in a way that reflected well on the Prime Minister. Unfortunately, however, the policy had a disastrous effect on the housing market that August; a number of transactions collapsed throughout the country. An estate agent in Berkhamsted in my constituency told me of a number of transactions that had collapsed. Why would people have wanted to enter into a transaction when house prices were already falling and when they knew that a more beneficial stamp duty regime was just around the corner?
The details were not very clear at that point. The Sun headline, as I have said, read, Brown to scrap stamp duty, which seems exaggerated to say the least. I did not buy a copy of The Sun that day, but I recall listening to the Chancellor of the Exchequer being interviewed by James Naughtie on the Today programme on the proposal for a stamp duty holiday of some sort. The Chancellor, for understandable reasons, gave a non-committal answer and, as a consequence, there were criticisms of the confusion within the Government.

Jeremy Browne: On the logic of what the hon. Gentleman has just said, should people who anticipate the Conservatives winning the next general election delay buying a house valued at between £175,000 and £250,000? If the Committee does not agree on it this afternoon, will new clause 3 be introduced if the Conservatives win the general election?

David Gauke: We would hope to be able to move quickly in addressing that and we will be clear as to our intentions. It was unhelpful for the Prime Minister to indicate at that point that a policy to raise thresholds, or even to scrap stamp duty, was about to be implemented, when the Chancellor appeared to give a different message. When the housing market was as fragile as it was in August 2008, there was not only confusion but an indication that there was going to be a change in the regime. That created a number of difficulties that I experienced as a constituency MP, and at a national level I know that concerns were raised by the Council of Mortgage Lenders and so on.

Mark Field: Obviously, it is flattering that the hon. Member for Taunton is so assured that the Conservatives are going to win the next election that he is looking forward to it as a possibility. Ultimately, there is an understanding that a change of Government will bring a change of tax regime in a range of different ways, whether in a manifesto or in some of the small print of the first Finance Bill. That is a fundamentally different situation to the one that we experienced last August, when the Government were making grandstand headlines that had an effect on a fragile housing market.

David Gauke: My hon. Friend makes a good point. Governments can immediately implement their policies, but in opposition it is a question of arguing for ideas. I will argue for the best parts of our policy this afternoon.
There is no doubt that the Treasury was deeply wounded by what happened on 5 August. I raised that concern with the Economic Secretary when we debated the orders that are being repealed as part of the clause. On 22 October, he referred to, Unhelpful press speculation, and added:
The speculation in August was unhelpful, and we worked hard to discourage it.
He went on:
Speculation in the press did not help our deliberations, and we worked actively to discourage it.
I put it to him that the speculation was started by an article in The Sun that was clearly informed by a briefing from the Prime Ministers office. The Economic Secretary responded
I repeat that that speculation was unhelpful.[Official Report, Third Delegated Legislation Committee, 22 October 2008; c. 7.]
It is worth noting that the Economic Secretary has a mild manner, but can be quite gutsy when he needs to in standing up to No. 10 Downing street. I commend him for doing that in a rather subtle way during our debate of 22 October.
My second area of concern is that when this measure was finally announced on 3 September last year, the Prime Minister stated that it was going to save taxpayers £600 million. At the time, that number was questioned significantly. Robert Chote of the Institute for Fiscal Studies questioned its plausibility and said:
It would be interesting to see why the Treasury thinks it is going to be as expensive as this.
He went on to say that he thought that the figure would be nearer £200 million. Indeed, the sums suggest that if the cost to the Exchequer is going to be £600 million, it would need to involve 400,000 house transactions of £150,000 on average.
We have heard the numbers from the Economic Secretary. He has updated the Committee as to the number of transactions and said that there have been 90,000 so far. He gave a figure of 210,000 transactions in total, but 60,000 of those are as a consequence of the extension from September to January. The number has actually turned out to be 150,000 transactions. I think that £270 million is the cost of the overall package, including the extension. The Economic Secretary will correct me if I am wrong, but the estimate given by the Treasury at the time was clearly wide of the mark. The figures given by the likes of the IFS appear to be much closer to realitythey may be slightly exaggerated, but the IFS has pretty much got them right. I return to the question asked by Robert Chote last September: why did the Treasury think it was going to be as expensive as it was? It clearly got the number significantly wrong, and it would be helpful for the Committee to know how that mistake happened.
It is also worth considering how effective the policy has been. When the Prime Minister announced the measure in September, he told the BBC:
Home owners need to know that we will do everything we can to keep the housing market moving.
It is worth taking a moment for a small amount of textual analysis. It was not that it was important to keep the housing market moving or to do everything to keep it moving; rather, the important thing was that home owners needed to know that the Government would do everything to keep the housing market moving.
The consequences have not, it is fair to say, been a dramatic success in terms of turning the housing market around. To be fair, by way of a test, we could ask what the policy would have been otherwise. However, Nationwide says that, following the announcement, house prices fell by 1.7 per cent in September., by 1.5 per cent. in October, by 0.5 per cent. in November, by 2.6 per cent. in December, which was a record fall, level with that of May last year, by 1.3 per cent. in January and by 1.9 per cent. in February.
Halifaxs numbers show a similar pattern: a fall of 1.3 per cent. in September, of 2.4 per cent. in October, of 2.7 per cent. in November, and of 1.6 per cent. in December. January appears to be the outlier herethere was an increase of 2 per cent.but that was followed by a fall of 2.3 per cent. in February, of 1.9 per cent. in March and of 1.7 per cent. in April. As I said, it would be unfair to say that the policy is therefore a bleak, dismal failure, but if the intention was to turn the housing market aroundgiven the Governments assumptions on how much the measure would cost, that seems to be what they anticipatedit has failed to deliver.
I wish to return to a technical issue on the stamp duty provisions that I have raised before with the Economic Secretarywe debated it in Octoberon disadvantaged areas. For some time, certain parts of the country have been designated disadvantaged. In those areas, there was a higher stamp duty threshold of £150,000 as opposed to £125,000. Presumably, the intention is that the higher threshold in those areas will encourage and provoke more economic activity. My point to the Economic Secretary in October was that Her Majestys Revenue and Customs website stated that the stamp duty threshold was £175,000 except in disadvantaged areas, where it was £150,000. He provided assurances that that was a mistake and, indeed, the HMRC website has been updated and my point has been addressed. The website currently states that disadvantaged areas relief will not apply for residential-only property purchases between
3 September 2008 to 31 December 2009 inclusive.
I am grateful for that clarification. It appears to address the concern that I raised last October. However, I would be grateful if the Minister could explain why that is the case. Why does the legislation on disadvantaged areas relief not apply? There does not appear to be any instrument that disapplies it. Is this merely something that can be done at the discretion of the Government and HMRC? I do not argue that there should be a different regime for disadvantaged areas and that disadvantaged areas should have a lower stamp duty threshold, but it would be helpful to have the legal justification. Why have we not seen an order? Why is there is no reference in clause 10 to that point?
New clause 3 represents our proposal to increase the stamp duty threshold for first-time buyers to £250,000. As I am sure the Committee will recall, this was part of the announcement made by my hon. Friend the shadow Chancellor in his 2007 party conference speech. He set out the argument for raising the threshold to take nine out of 10 first-time buyers out of stamp duty. The anticipated cost was £400 million, which was going to be paid for by a charge on non-doms. I note the comments from the Minister and I anticipated that he would be able to provide the figure. The cost of the policy has since diminished to £290 million, but it is fully funded. I also suspect, and the Minister did not give these figures, that the proportion of first-time buyers who will be taken out of stamp duty will be greater than nine out of 10, given the changes in house markets. It would be fair to say that the economic situation has changed substantially since October 2007, but the argument for this policy remains valid.
The concern that my hon. Friend the Shadow Chancellor expressed in October 2007 was about how difficult it was for first-time buyers to get on to the housing market because house prices were very high. They are lower now, but it has continued to be difficult for many first-time buyers. As a result of the credit crunch, it is generally necessary to have a much larger deposit and the up-front costs of acquiring property can deter many potential first-time buyers. One of those up-front costs is stamp duty. An attempt to address that is a well-targeted policy to assist first-time buyers and also to get the house market moving. I come back to the intention behind the policy, which we do not criticise. At a time when the housing market has been very slow and when stabilisation in the housing market may well be a pre-cursor to increased confidence in the economy as a whole, we think this remains a timely, appropriate and beneficial policy.
I note the Ministers comments about there being no definition of a first-time buyer in the new clause. We accept that this is a complicated matter, but we do not accept that it cannot be addressed within regulations. The Treasury could and should look at ways in which first-time buyers can be helped through use of the stamp duty regime. It is not included in the clause, but nor would one expect it to if the Government were proposing it. It is the sort of matter routinely dealt with in regulations.
In conclusion, we will not oppose clause 10. We have concerns about the way it has been presented as a policy by the Government. We rightly question how effective it has been. We are doubtful about the way the Government have made projections as to the cost of it, but its purpose is admirable. However, it is not as effective and beneficial as our proposal in new clause 3, which could provide an opportunity for a first step on the housing ladder for hundreds of thousands of first-time buyers. I commend new clause 3 to the Committee.

Jeremy Browne: Before I talk about clause 10 as a whole, I will address a few comments to new clause 3, which has just been introduced by the hon. Member for South-West Hertfordshire. We all wish to help people who aspire to own a property, as so many in this country do. It is a great rite of passage for many people; they regard it as important not only as a financial investment but as a way to establish themselves and their families in society as a whole.
There are genuine anxieties about how we define a first-time buyer. At the moment, public finances are extremely stretched, to put it mildly. We are borrowing roughly half a billion pounds every single day. Although the Conservative party says that the policy is funded, it is reasonable to consider whether we are achieving value for money with any tax proposals. Without a definition of a first-time buyer, there is a concern that people will exploit the opportunity entirely legally. I do not mean that they will exploit in a bad way, but they will exploit it in a way that is not beneficial to the taxpayer. The Minister gave a possible scenario in which the beneficiaries were not those for whom the clause was intended.
I also fear that there might be couplesin middle age, for examplewho bought a house in the mans name and who then buy a second house in the womans name, and she is a first-time buyer. Unless I misunderstand the clause, she would be eligible to buy a house under those criteria and, having never bought a house before, would benefit. The couple could use the opportunity to buy a second property, which might supplement a large first property that was in the husbands name, in the scenario I have just outlined. It is not clear that the beneficiaries would be people trying to get on the housing ladder for the first time. They might, for example, be people who live in multi-million pound houses for which the mortgage is paid off but who fancy a second propertyperhaps a holiday homeand would benefit from the clause. That might be a desirable way to spend public money in the view of other members of the Committee, but I am not sure that it is the political pitch that is being used to sell the clause to the wider public.

Graham Stuart: The hon. Gentleman is a resourceful and intelligent man. It is not beyond him to conceive of rules that would ensure limitations on this proposal in order to target it more precisely atas he would saythose for whom we would most like to see that benefit. If he acted more constructively, he would not oppose efforts to help first-time buyers. He would help those of us who wish to help them in the best possible way.

Jeremy Browne: I am grateful for the hon. Gentlemans flattering comments. Even with all my wisdom, I do not think it is my task to try to plug the holes in a Conservative party policy that was dreamt up to try to put off the general election and win a round of applause from an audience which was never invited to think how this measure might work in practice. It is entirely reasonable to ask whether the beneficiaries will be the people this policy is being pitched at. It may well be that a large number of them are not. I do not know whether there is an age threshold. If I, for example, had five children, would I be able to buy each of them a new property at just under £250,000 each? Or does the person buying the property have to be of a certain age? Would it be appropriate if they were adult children? There are questions.

Greg Hands: Will the hon. Gentleman at least concede that there are international precedents for discount on stamp duty for first-time buyers? I cannot recall whether it is on a federal basis in Australia, but some of the states certainly operate or have operated that system. If it can work in Australia in terms of the definitional questions that he raised, it should work here.

Jeremy Browne: I suggest that the lesson to be drawn is that, before he announces policy, the Conservative shadow Chancellor should do his homework and speak to people in Australia and then we would not be in the difficulties that we have talked about. This is all extremely vague. I will move on to clause 10 in a moment.
We knowbecause the leader of the Conservative party tells usthat the 50p tax change is low in the list of priorities if the Conservatives win the general election. What we have yet to find out is where this item is in the list. It may be even further back in the queue than the reversal of the 50p rate. I earlier asked a serious question of the hon. Member for South-West Hertfordshire about someone anticipating a Conservative win at the next general electionConservative party members seem to think and behave as if it were in the bag already. As there is only a year to go, someone looking to buy propertyof course calculating whether the property would change in value in the interimmay delay the purchase on the basis that they expect new clause 3 to be introduced very soon after the general election. There is now uncertainty about whether it will be so because these schemes and policies seem to be revisited depending on how much scrutiny they are subjected to. It is laudable for the Conservative party to try to help people in these circumstances, but I fear that a little more rigour is required before the party is judged worthy of office.
In terms of clause 10 as a whole, the hon. Member for South-West Hertfordshire made the reasonable point, though with a generous caveat, that the policy has not been a spectacular success if its purpose was to encourage more people to buy properties for the first time at the lower end of the market and so stimulate the housing market as a whole. One could argue, in the shoes of a Government Minister, that the fall in house prices would have been worse still had this measure not been introduced last summer. Certainly, some very bold claims were made for it. After that disastrous period when every estate agent in the country suffered severe cash-flow problems while people waited for the Government to introduce the policy which had been flagged up, there was still a period when it was claimed that the policy was likely to be successful; it was not.
There is one big question we have to ask ourselves. There may be many people on this Committee who own housesdare I say, more than onebut is it in the countrys interests to keep an overheated housing market overheated? The ratio of average salaries to average house prices is big by any historical precedent. There is a strong case to be made in the interests of people who do not own property but aspire to do so and in the interests of the economy as a whole for that ratio to be brought closer to traditional historical levels. We are a lot closer now than we were seven or eight months ago. Is it good use of taxpayers money to keep those ratios higher than they have been historically and to encourage people to invest in property rather than, for example, in innovative new businesses?

Graham Stuart: I am grateful to the hon. Gentleman for being so clear, because he has laid out, as we approach a general election, whenever it is, two policies that will obviously form part of the Liberal Democrats manifesto. One is that they oppose support for first-time buyers to get on the housing ladder and, secondly, that they support measures that will lead to a collapse in the already fallen state of the property market, in order to close the ratios to something that better fits the hon. Gentlemans ideal of the right mathematical calculation.

Jeremy Browne: Oh dearif that is the best that the Conservative party can do, I fear that they are even further from office than I had anticipated when I read new clause 3. I believe in free market economicsa shocking concept for Conservatives. I break the news to the hon. Gentleman that the reason that house prices are where they are is not that there is a man in an office in Whitehall who comes up with all the prices; it is because of supply and demand, and people deciding how much they will pay for a house. The person who owns the house typically sells it to the person offering the most money. That is how the system works. It is not decided by the Liberal Democrats. We decide lots of things in this country

Graham Stuart: Name one.

Jeremy Browne: For example, the status of Gurkhas in the United Kingdommany things. We set the pace in politics, as all members of the Committee know.
My pointa serious oneis whether the policy of Government should be to spend money on protecting the value of one type of asset over another type of asset. Should money be taken from people who do not own a house at all, in order to put an artificial floor under an asset belonging to people who are in many cases far more prosperous? I do not say that as Liberal Democrat policy. It is a reasonable question for anyone to ask, and without asking it, proper consideration of the clause seems impossible.

Graham Stuart: I put it gently to the hon. Gentleman that not taxing someone who is trying to get on the housing ladder for the first is not the same as spending taxpayers money. Perhaps the Liberal Democrats need to recognise that it is the peoples money that the Government tax and not the other way around.

Jeremy Browne: I take that point and understand what the hon. Gentleman is saying. Equally, however, one could make the same point about abolishing VAT on cars for people buying their first caran aspiration that many young people have. In rural areas, such as I represent, many people regard owning a car not just as an aspiration, but as a social and economic necessityI shall not go too far down this track, Mr. Atkinsonafter they pass their test when they are 17 years old. One could say that that would be a legitimate forfeiture of tax revenue. On the other hand, the duty of people who cannot afford to own a car at all is not to subsidise the cost of someone who is buying their first car. That was my only point.
My wider point was why first-time buyers are not buying property in the numbers that clause 10 induces them to donew clause 3 seeks a similar inducement. Is it because they are deterred by stamp duty levels? My answer is: perhaps, to some extent. Clearly there is a marginal effect, although in the overall scheme of things, when buying a new property, it is not, I would contend, the biggest factor. I think that there are three factors that cause more problems for people seeking to enter the housing market than the deterrent effect of paying stamp duty at the levels that we are talking about.
The first factor is the unwillingness of banks to lend money to people, particularly those who do not already have a big asset. Under new clause 3, the bank might be quite generous in its lending terms to a person who has never bought a house and wishes to buy a holiday cottage, but whose spouse owns outright a house worth £1 million. However, what about first-time buyers, say, in their twenties, who have managed to save up a bit of money? It is hard for people who have left university and who are trying to establish themselves in a place of work to accrue more than a few thousand pounds, unless they inherit money or are given it as a gift. If they are looking to buy a property for, say, £150,000, they might need a deposit of about 20 per cent. of that sum£30,000. I venture that the inability of a person on typical wages or perhaps even double typical wages to raise a £30,000 deposit would be a much greater deterrent to that person entering the housing market than a saving on stamp duty. That is one reason why I fear that the provision will not have the impact for which some might have hoped.
I think that I said I wanted to outline three factors that cause problems, but I actually want to mention four. The second factor is that the market is falling. Many people say that they aspire to get on the property ladderthey regard it as a rite of passage and something that would be economically and socially beneficial to thembut that now is not a good time to buy because the properly market is falling on average by the figures given by the hon. Member for South-West Hertfordshire. The fall in the prices of some types of property, such as one-bedroom or studio flats that might be particularly attractive to first-time buyers, might often be greater than the average.
Quite a few people are choosing to rent until the market has picked up or at least turned a corner, or they could be trying to save up a bit more of a deposit. They would not be induced to buy a property because of the stamp duty holiday. In fact, we could ask ourselves an interesting moral question: should we want them be? I was citing the example of a £150,000 property. When the policy came into effect in the late summer last year, the Government were trying to induce people to buy that £150,000 property. What is that property worth today? Perhaps £135,000. People were given a nominal incentive to buy the house and their losses far outweigh the inducement they were given by the Government to buy the house. I am not claiming that that is a false prospectus, but if I had been lured into the housing market just as it was falling rapidly, I might consider that the Government had not done me such a big favour as they claimed to be doing at the time.

David Gauke: I am tempted to dwell on the hon. Gentlemans point about the influence of the Liberal Democrats, which suggests that they might be almost as influential as Joanna Lumleybut by no means as pretty. He is making an interesting observation, but it is very much a paternalistic one, given his early remarks about belief in the free market. He now seems to be arguing against individual responsibility for people making house purchases.

Jeremy Browne: I am not doing anything of the sort. Anyone who has the money to buy property should be entirely free to do so. If they judge for themselves that now is the time to make the purchase, that is their decision. The question is whether our taxes should be used to induce people to buy property, when we know with almost complete certainty, as we did in late summer last year, that the value of their asset would fall. People may think that it is up to the individual to make that calculation, and it is. I was not saying that people should be prevented from buying houses in those circumstances. They might take a longer view and think that, in a 10 or 20-year scheme of things, that is an intelligent purchase.
To return to my original point, I do not think that people were necessarily deterred from buying houses primarily because of the level of stamp duty. They were deterred, first, because they could not borrow enough money to cover the mortgage costs and, secondly, because they were wary of a falling housing market. I have two more reasons.

Graham Stuart: No one is suggesting that stamp duty is the key component of anyones decision not to buy a house at the moment. As my hon. Friend the Member for South-West Hertfordshire pointed out, the hon. Gentleman contradicted himself by talking one minute about the free market, and the next about inducements owing to the removal of tax. If he were to accept that the forgoing of tax from first-time buyers is a suitable policy instrument, would he not agree that the time to implement it is when the housing market is in the doldrums, in order to help to turn it around and to minimise the barriers to getting on the housing market, rather than when prices are rising? Would he introduce such an instrument then to further inflate a bubble?

Jeremy Browne: I apologise for my lack of clarity, Mr. Atkinson. I was saying that I thought that the volume of sales and the price of property are determined by supply and demand, not by the state. The state can nibble away at the edges by giving tax inducements, but primarily the factors governing price and turnover are not in the gift of the state. Anyone can buy a house if they meet the legal criteria and have the money. However, is the highest priority for the taxpayer, at a time when the nation is borrowing £20 million every hour, to try to induce individuals to stretch themselves to buy a property when the market is falling? Is that the best use of taxpayers money?
That is a reasonable question, because someone is likely to have stretched themselves a lot if the inducement of this stamp duty measure makes the difference between making the purchase and not. We are talking right on the marginsthose for whom that marginal benefit is sufficient to make that decision. We are talking not about people putting down a 65 per cent. deposit and who are pretty secure in the housing market, but about people who might have been lured into the market in late summer last year and now might be facing repossession. That is a perfectly plausible scenario. Those facing repossession might wonder why their money, as taxpayers, was spent on luring them into those circumstances. My point was not about the free market.
My third reason is this: quite a lot of people are not only fearful about the direction of the housing marketindeed, some think that it is beginning to turn a corner, although it is difficult to make that judgment. One wants to be just ahead of the pack when coming to that conclusion. However, there is a wider concern about the economy as a whole and, specifically, about unemployment. Historically, there has been a correlation between confidence in the housing market and levels of unemployment. That correlation is stronger than the actual percentage of the work force in unemployment would suggest.
Of course, the unemployed are not normally in a position to contemplate buying a new property. However, peoples fear of unemployment is often disproportionate to the statistical likelihood of their becoming unemployed. For example, if one worked in a company with 100 employees and it became evident that it was about to shed 10 per cent. of its work force, all 100 employees might modify their behaviour accordingly and hold back until they found out whether they were one of the lucky 90 or one of the unlucky 10. Of course, the reason that the Government have temporarily reduced VAT is to try to give some sort of inducement to people not to hold back because they are fearful of their future economic prospects. In an earlier clause, the Government recognised that there is that fear of the future in the population as a whole. I contend that that fear is more likely to deter people from buying a property, particularly at this level, than any inducement on stamp duty that may or may not be given is likely to persuade them to buy.
My final argument is more contentious, because it relates to what MPs often say in their constituencies. They often say that, if we wish to see property prices that are more affordable for more people who are trying to get on the housing ladder, we need to see whether or not prices will return closer to their historical ratio to average earnings. However, in many parts of the country there is a shortage of supply of housing. The reason why I say that this argument is controversial is that a lot of MPs, of all parties, accept it in broad terms, but then rush back to their constituencies to have their photograph taken next to the site of any proposed housing development on their patch, saying how hostile they are to any changes in their constituency.

Mark Todd: I was just wondering if the hon. Gentleman would expand on what he said to his constituents in Taunton, because he recognises the difficulty that exists.

Jeremy Browne: I shall not turn this into a very long speech about Tauntonunless people wish me to do so. However, Taunton is quite a good case study, because the town is on a motorway and an inter-city train line, with a population measured at 63,000 in the last census. [Interruption.] Stick with me. Taunton has been identified by the Government as an area for potential extra development, because it has some of those key transport infrastructure requirements.
I think that there is scope for extra development in Taunton. What I am uncomfortable about is the type of top-down command view of housing development. Because of the free market instincts that I talked about earlier, I am not sure that what we need is not something a bit more organic and incremental than an imposed target of 20,000 houses. However, I do not doubt that there is a shortage of housing supply in my constituency. People come to see me frequently to say that they would like to see what we now call social housing, that they feel that there is not enough of that type of housing and that they would like to get on the housing ladder for the first time.
The ratio of wages to property values is particularly big in the south-west. Although property values are quite a lot lower than those in London, wages are a lot lower too. I think that the south-west may even have the worst ratio of any region in the UK, in terms of the ability of people who on typical pay to afford a typical property. Some people may think that it is politically unwise of me to do so, but I often say to residents in my constituency that I support some extra housing development, which should be mixed; it should not consist of one type of property. There also needs to be an emphasis on property that is realistically affordable for people who are seeking to get on the housing ladder for the first time.
Apart from in some marginal cases, stamp duty is not a consideration that is the determining factor for those people when deciding whether or not to acquire a property. In many cases, it may be that the sheer shortage of supply means that there are very few of those affordable properties on display in the estate agents window in the first place.

Greg Hands: I think that the statistic that the hon. Gentleman cited is quite right, and that the south-west does have the widest disparity between house prices and income levels. Does he therefore agree with many of his parliamentary colleagues who campaign on banning people from owning second homes in the south-west? Does he think that such a ban might be a solution?

Jeremy Browne: I am not in favour of the state telling people where they can live. I suppose that the only caveat that I may add to that statement is that there are some particularly unusual circumstances, for example in national parks

Peter Atkinson: Order. We are going a little wide of the clause.

Jeremy Browne: I shall not do a tour of national parks, Mr. Atkinson. My central point is that in towns such as Taunton many people seeking to become home owners for the first time face the problem of a severe shortage of the types of property they might regard as being in their price range, and that overrides any considerations about stamp duty.
Those are my four concerns: the difficulty of borrowing enough money; the falling value of property, which means that the decision not to buy property being taken by many people is quite rational; the uncertainty about the future of the economy, specifically with regard to unemployment, which deters some people from buying property, and; the shortage of supply in many parts of this country, particularly of the type of housing that is attractive to first-time buyers. I maintain that those reasons weigh more heavily with people trying to decide whether to buy than any stamp duty holiday, be it that envisaged in clause 10 or that in new clause 3. We are having a perfectly interesting and worthwhile discussion, but I fear we are labouring under the delusion that all those considerations across the population as a whole can be influenced heavily by tweaking a few of the knobs and pulling a few of the levers available to the Government.
My view is that entirely rational decisions being made by millions of people, combined with a free market in housing, are much more likely to make a difference, and that is why I fear that some of the claims being made by both Labour and Conservative politicians in that debate are rather exaggerated.

Mark Field: That was an interesting contribution from the hon. Gentleman. I, too, shall be a little more candid than perhaps is entirely wise. I hope that no one on this side of the Committee will be too hard on me.
Luckily, some of us do not have second homeswell, actually, I do have a second home, but it was paid for entirely out of my own resources rather than anyone elses. About eight years after becoming a Member of Parliament, I have discovered that there are some benefits in representing an inner-London constituency that were not immediately apparent when a variety of scams were being operated outside the public gaze.
I agreed with much of the hon. Gentlemans contribution, and if the under-30s were twice as likely to vote as the over-55s, rather than the other way round, I would bet that all Governments would do a lot more to tackle the problems of housing supply. The reality is that it has been a political issue, as much as anything else, to maintain a relatively buoyant housing market, not least because those who are twice as likely to votethe over-55s, rather than the youngstersalso tend to be home owners and their wishes have to be considered to a large degree.
I also agree with the main thrust of the hon. Gentlemans argument: realistically, there is not much that most Governments can do. We have a ludicrously complicated system of property in this country, and adding layer upon layer of complication does not make things any easier. I agree with our new clause 3 and think that it is fine, but it would work only slightly, at the margins.
We already have in this country a capital gains tax exemption for main homes. That ludicrous distortion has a knock-on effect, as the hon. Gentleman rightly pointed out, in relation to investment for small business, and it is in great contrast to the regime in many European countries. Many elements of stamp duty land tax further distort the distortion, and that is regrettable in many ways. For many people, property has become the most important asset. I do not want to see peoples aspirations cast aside, but let us be absolutely honest about it: home ownership, given the chaotic lifestyles and earning patterns of many people, should not necessarily be regarded as a right.

Mark Todd: The hon. Gentleman is making an extremely interesting speech, which I have to assume does not reflect current Conservative policy. I am sure that he has read about extraordinarily advanced societies in western Europe where home ownership is far less prevalent and less sought afterfor example, Germany and Switzerlandand of very poor societies where home ownership in is sought after but to no effect. We seem to have an unusual fixation.

Mark Field: We do have that fixation. Let us be honest, home ownership provides stability and, potentially, collateral for doing other thingsor it has done in the past. The crux of some of the present financial problems is in the sub-prime market and the idea from the mid-90s in Clinton Democrat America that home ownership should be encouraged. The financial services industry in the United States created products for people who should never have owned property, given their chaotic earning patterns, and I sense that we risk the same happening here.
An Englishmans home is his castlea great aspiration. As someone who bought their first property at the earliest opportunity, at 23, I would not say that people should not aspire to it, but we have to realise that for many people it can be a mirage. They go down a path to property ownership and quickly find that it is more of a shackle than a benefit. Part of the difficulty has been that miss-selling and poor returns has shattered the savings and pensions industrys reputation, so it was logical for many people

Peter Atkinson: Order. I apologise for interrupting the hon. Gentleman. He is making a very interesting speech, but it is meant to be about stamp duty land tax.

Mark Field: It is fair enough that you pulled me up, Mr. Atkinson, but the point I was trying to make was that there has been a herd-like mentalitya logical one, particularly for those in their 20s and 30sto aspire to own property. I am not apportioning blamethis is about the political establishment, although probably not as far back as the last Liberal Government. Even the hon. Member for Taunton will acknowledge that successive Governments have found ways to complicate the system ever more. I am not suggesting that we can start with a blank sheet of paper, because that, inevitably, is difficult. We have a crazily complicated system for housing. The notion that a main home is a capital gains tax-free investment is not prevalent around the world and is perhaps peculiar to this country. It has been a huge distortion, which has, obviously, led to tinkering with stamp duty land tax.
I wanted to make only a brief contribution. I am comfortable agreeing to new clause 3, but ideally we, the whole political class, would have the benefit of a more open and broad debate which considered the distortions, the publics aspirations and why our system is different. I suspect that historical reasons surround the disparity between the situation here and that which pertains in other European countries, as the hon. Member for South Derbyshire points out.

Jeremy Browne: The hon. Gentleman is making an interesting speech about not assuming that owning a house is a right and about downsides as well as upsides to property ownership. However, I would not wish anyone to infer from what I said that I was hostile to peoples aspirations. I observe only that those who say how desirable it would be for more people to rent rather than own property almost invariably own property themselves.

Mark Field: I agree, and I am not downplaying peoples aspirations. If one reads The Sunday Times money pages, as we all do, every week people say that their best investment has been property, and over a 30 or 40-year period that seemed to be the case. With lower interest rates and political pressures, which make bringing supply and demand together difficult, that may not be the case for years to come. For the first seven of the 20 years that I have owned property, between 1988 and 1995, there was no capital gain, and of course since 1995 up until the last year or two, property has been a terrifically good investment.
We are tinkering at the edges and there needs to be a more sensible debate, beyond a slanging match between political parties that suggests that one side does not look to help first-time or aspiring buyers. Such a slanging match takes out some of the real problems that we all face with planning applications in our constituencieswell, I probably do not. Many more properties need to be built, but ideally some five or 10 miles outside my constituency, from where we will reap the benefits but not get any of the downside. I hope that we can have sensible debates on the matter in the future, and that sense will prevail and new clause 3 will be added to the Bill. However, I suspect that that will be another hope and aspiration that will not be fulfilled, at least not now.

Ian Pearson: I shall respond briefly and try to focus my remarks precisely on new clause 3 and clause 10. I do not want to go over old ground with the hon. Member for South-West Hertfordshire, regarding some of the comments that appeared in the press last August. However, I want to emphasise that, although the press speculate daily on many aspects of Government policy, that does not make them right. As I said at the time, the press comments were unhelpful. I do not feel the need to say anything more on the matter, but I would like to respond to some of the hon. Gentleman more substantive points.
I confirm that the estimated impact of the holiday on the Exchequer is £340 million, which includes the cost of the extension announced in the Budget. It is right to say that we have looked closely at the costs. It is not possible to estimate precisely the impact on transactions because we are dealing with a counter-factual situationwhat would have happened in the absence of a stamp duty land tax holiday. In the pre-Budget report we said that the figure was £280 million and we revised that down in the Budget to £250 million plus the extra £90 million for the September to December 2009 extension. On the hon. Gentlemans comments on disadvantaged areas, there is no need to disapply the £150,000 figure because the £175,000 threshold makes that unnecessary. However, once the holiday ends, policy will go back to what it was, and the limits will be £125,000 generally and £150,000 in disadvantaged areas.
The hon. Gentleman also made some significant play of saying that it was simple to define first-time buyers in regulation. That is not the experience in Ireland, where we have been told that rules defining a first-time buyer run to more than seven pages. There are some complex issues here, a number of which were pointed out by the hon. Member for Taunton. There are issues regarding divorcing couples, there is the overseas example that I gave in my initial remarks, and there are issues regarding the administrative burdens of potentially implementing this as a policy.

Greg Hands: Has the Economic Secretary looked at the example of Australia? He mentioned Ireland, but I understand that Australia successfully introduced a similar scheme.

Ian Pearson: My officials are certainly aware of the Australian scheme and have looked extensively at a number of issues.

Greg Hands: Will the Economic Secretary give way?

Ian Pearson: I am not saying that it is impossible to do so, but I am pointing out that it is not as simple and straightforward as was perhaps suggested by the hon. Member for South-West Hertfordshire when he moved the new clause.

Greg Hands: I thank the Economic Secretary for giving way again; he is being most generous. He says that his officials looked at the Australian example extensively. Surely after such a considerable look, they must have come up with some conclusions or lessons that could be learned.

Ian Pearson: We believe that the policy of the holiday that we introduced on 2 September is targeted, temporary and timely. It was right in the circumstances not to favour first-time buyers over other buyers of properties with a value lower than £175,000.
The hon. Member for Tauntons interesting speech covered many areas and not just his concerns over first-time buyers. He spoke of other factors that people take account of when buying a home. Everybody recognises that people take many circumstances into account when considering a house purchase. Even following his lengthy speech, I am not sure whether he is in favour of the principle of a stamp duty holiday or even of a stamp duty threshold. The Government have made it clear that we see this measure as temporary and targeted.
I will respond briefly to the hon. Member for Cities of London and Westminster. I do not wish to speak about his comments on capital gains tax, but I do want to rebut his implied criticism of Government policy. It has not been an instrument of Government policy, as he seemed to suggest, to keep house prices high to help over-50s because they are more likely to vote than under-30s. On the contrary, the Government have set extremely ambitious house building targets, which have been alluded to. We want those targets to be met. We want people to be able to rent or buy the roof over their heads. That is Government policy.

Graham Stuart: I am surprised that the Liberal Democrat spokesman did not leap to his feet. Just for the elimination of doubt, it was clear to me from what he said that he was utterly opposed to special relief for first-time buyers. He thought that it was impracticable and we seem to be opposed to it in principle.

Ian Pearson: The hon. Member for Taunton has put his comments on the record. I happily give way to him.

Jeremy Browne: For the avoidance of doubt, if the Conservative party comes up with coherent, well-researched, thought-through and practical policies that would be of benefit to my constituents, I will be sympathetic to them. However, it would be embarrassing for the Conservative party and the country if policies such as new clause 3 were included in the Finance Bill.

Ian Pearson: For the reasons I explained in my introductory remarks, I do not believe that new clause 3 should be supported. It would not be effective. If the hon. Member for South-West Hertfordshire presses it to a vote, I invite my colleagues to oppose it and to support clause 10.

David Gauke: I do not intend to go over the debate again. I appreciate that we will not vote immediately on the new clause. I am not persuaded by the Ministers comments. I note he said that it is not impossible for first-time buyers to be defined. When there is an opportunity, we will press new clause 3 to a vote.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 12

Rates of tobacco products duty

Question proposed,That the clause stand part of the Bill.

Greg Hands: May I begin by welcoming you back to the Chair, Mr. Atkinson?
Clause 12 relates to the levels of tobacco duty, which are superficially not particularly controversial. We do not oppose the increases in duty. However, a number of questions need to be asked about the Governments approach to the structure of tobacco duty andI hope the Minister will provide some answers in her response. The effect of duty increases on illegal supplies is also a concern, particularly if sterling recovers ground against the euro.
For those less familiar with the structure of tobacco duty, I will briefly run through itpartly because it is more complicated than one might initially expect. I was a smoker for some years and used to await the announcement of the Budget and the number of pence it put on a packet of cigarettes. I imagined that the way it was arrived at was very simplistic; it is actually quite complicated.
There are two specific parts to tobacco duty. The first is called a specific duty, which is a set amount of duty. It translates into duty on a per-packet basis, but is assessed on a number of pounds per 1,000 cigarettes. As we see in clause 12, that is to rise to £114.31 per 1,000 cigarettes, up from £112.07 prior to 22 April. That is a rise of two per cent., which translates to the average packet of cigarettesan interesting concept that I will come back toto approximately £2.29 of specific duty.
Added to that is the ad valorem element, which is a percentage of the total price of the retail price of a packet of cigarettes. That was increased in the pre-Budget report from 22 per cent. to 24 per cent. That is important for our considerations, because that percentage is calculated after that has been applied to a packet.
As with the alcohol duties that we debated a couple of weeks ago, the context of clause 12 is last Novembers pre-Budget report and the Governments late-in-the-day efforts to offset the revenue they were going to lose through the cut in VAT by increasing tobacco duties. In the case of tobacco, it raised the ad valorem element of the duty on cigarettes by 2 per cent. to a total of 24 per cent.
The two figures were designed to be roughly equivalent, with the fall in VAT and the rise in ad valorem more or less offsetting each other when fed through to a change in the retail price of a packet of cigarettes. The pre-Budget report left the specific fix element of the duty unaltered and that change corresponded quite well to the VAT loss. However, like the alcohol duties when VAT returns to 17.5 per cent. in January 2010, there will be some important and significant effects on the overall pricing level of cigarettes.
It corresponded with the pre-Budget report because the ad valorem duty, as I have explained, is a proportional tax on the retail price of cigarettes. However, it has a unique feature: because it is a tax on the price of a packet of cigarettes, including the margin for the specific duty under VAT, this is a tax that taxes tax. In other words, the percentage of ad valorem is applied to VAT and other charges. There is therefore a consequent multiplier effect on the amount of tax paid as the cost of a packet of cigarettes increases.
That might seem esoteric, and perhaps not particularly relevant, but it has important consequences for the market price of a packet of cigarettes: the ad valorem duty widens the differential between the tax on cheaper brands and the tax on premium brands. That was true, of course, well before the pre-Budget report came along. The price gap between the cheapest cigarettes and premium brands, such as Marlboro or Rothmans, has increased from less than a pound to nearly two pounds in the last six yearsa considerable change so far this decade.
The increasing element to the ad valorem tax has incentivised the new super low-priced brands that have either been around for many years, or those that have entered or re-entered the market, such as Pall Mall.

Mark Field: Is it also the case that the issue has probably incentivised organisations that want counterfeit tobacco, which is so prevalent on our streets, to focus on some of the higher priced brands so that there is more value in getting their counterfeit product on the market?

Greg Hands: My hon. Friend is right. I will talk about counterfeit brands later, because the huge rise in counterfeit or fake brands, which are designed to look like real brands, is an important part of the whole equation.
A packet of Pall Mall cigarettes retailed at around £4.20 before the increases in the Budget, and a packet of Marlboro cigarettes retailed at around £5.80. That was after the increase in ad valorem, but before the increase in specific duties. The sales figures show that there appears to have been a general shift in consumption towards cheaper brands, which may be expected because the tax regime changed, and people react against duty rises that disproportionately affect mid-priced and premium cigarettes.
Interestingly, the Government appear to recognise that ad valorem duty has ratcheted up the differential, which is where their problems begin. Members of the Committee may be awareas a member of the European Scrutiny Committee, I am certainly awarethat the European Commission recently consulted on the structure and rates of excise duty that are applied to cigarettes and other manufactured tobacco. It subsequently published a draft directive, which I will address in due course. The Government submitted quite a lengthy document in response to the consultation, which can be downloaded from the European Union website. I think that it is also available on the European Scrutiny Committee website.
The document is called, Response to the Commissions Consultation Paper on the structure and rates of excise duty applied on cigarettes and other manufactured tobacco, and it is a detailed and very well reasoned response. Referring to the problem that I have just outlined, the Governments paper states:
Under an ad valorem regime, this multiplier effect makes it more costly for producers to raise the pretax price, which has implications on the behaviour of producers in imperfectly competitive markets such as tobacco, which is characterised by small numbers of large firms. The multiplier effectively increases the marginal revenue a supplier in such a market perceives and this means it is then profitable for the supplier to lower prices and raise output.
In other words, the Governments position is that a large amount of ad valorem incentivises producers to raise profits by lowering prices and raising output. That raises an interesting question as to whether we want Government policy to make tobacco manufacturers lower prices and raise output. That is exactly what is happening, which is surely contrary to the health objectives of the tobacco duty policy.
Of course, the ad valorem element of duty is an EU requirement. This is not a speech against the ad valorem element, but raising it is not an EU requirement. Taxing the tax on cigarettes increases the price advantage of cheaper varieties without any convincing rationale from the Government in either revenue or health terms. Indeed, in revenue terms, the sale of cheaper brands is, on the face of it, negative for public finances, as less ad valorem will be brought in.
So did the Government think that the higher ad valorem duty that they introduced in November was a good idea? Reading their response to the EU consultation, one would think not, because they made it clear that they believed that
there is a strong case for specific duties as the only option for taxing tobacco products.
So suddenly the Government were saying that we should only have the specific duty and get rid of the ad valorem duty, just months before they bumped up the ad valorem duty in the PBR. That makes no sense. Specific duties are, of course, the other element of the tax on cigarettes and are based on the weight of tobacco involved, not the price of any particular brand.
To spell it out, by arguing for specific taxes as the only option in their response to the EU, the Government argued that the ad valorem tax should be scrapped altogether when the EU approves a new directive on this subject. But in the PBR, the Government went in completely the opposite direction, raising the ad valorem part of the duty and leaving the specific part where it was. I accept that the PBR was neutral on revenue and prices. However, following the Budget, Novembers change to the ad valorem rate has proved to be far from neutral. It altered the structure within which other changes are now occurring like the changes in clause 12.
The increases in specific duty will now widen the gap between cheap and expensive cigarettes by far more than would have been the case due to the November steep increases in ad valorem. This will hold true for any future increases in specific duty or in other matters such as production costs. When VAT returns to 17.5 per cent., the gap will widen again because the ad valorem duty taxes the tax on cigarettes. So the VAT increase will lead to an even larger rise in the price of a packet of cigarettes because of the increase in the ad valorem as it is assessed on the VAT.
It is not clear to me why the Government are set to take this course. There are no apparent health benefits associated with cheaper cigarettes. I have even seen arguments that cheaper cigarettes may be less healthy than premium brands. The justification for having the duty in the first place ultimately rests on health grounds. When the Exchequer Secretary to the Treasury justified maintaining prices in line with inflation last year, she said that it was because it would
continue to encourage people to smoke less or to give up.[Official Report, Finance Public Bill Committee, 15 May 2008; c. 221.]
In my view, increases in ad valorem duty encourage people to trade down in terms of what they spend on a packet of cigarettes by changing brand, as much as they encourage people to smoke less or to give up. That is not just my argument. The Government even argue that the change will encourage trading down more than it will encourage smoking cessation. This is another line from their response to the EU consultation. They said:
Specific duties are the most effective way of maintaining high prices for tobacco products and thus encouraging people to reducing smoking or quit.
Therefore it is quite extraordinary that since the PBR the Government have done exactly the opposite of what they themselves told the EU that they regarded as being effective. This was not that long ago. It is just over a year or a year and a half ago that they made this submission to the EU. So the only charitable conclusion is that the PBR changes were as hurried and botched in relation to tobacco as they were in relation to alcohol. It may have seemed to make sense to offset the Chancellors cut in VAT by hiking ad valorem duty because as a one-off short-term measure the correlation was close, but in the medium term it simply is not and its main impact has been to widen the duty differential between cheaper brands and premium ones.
The Government stand condemned by their own words. As they said in their submission to the EU:
Substantial evidence shows that younger smokers are more price sensitive, and the existence of cheaper cigarettes tends to make individuals more likely to smoke, and to make smokers less likely to give up. Specific duty, in increasing the price of all cigarettes, deters the taking up of smoking, and encourages smokers to reduce their consumption and quit.
That is an absolutely clear-cut case for raising specific duty, rather than ad valorem, a regime that the Government wanted to see abolished in their response. Specific duty is the one most likely to lead to smoking cessation, not ad valorem.

Graham Stuart: I wonder whether, like me, he hopes that the Minister will be able to reassure us that lower price cigarettes do not have a higher tar content on average than higher price cigarettes, because that would certainly compound the already powerful case that my hon. Friend is making against this obviously ill-thought-through measure.

Greg Hands: I thank my hon. Friend for that intervention. With the huge variety of brands out theresome of them new, others counterfeit or fakeI expect that it might be difficult to make that generalisation. However, I think that that is an important point. Another relevant point is the example of revenuecertainly, lower priced cigarettes generate less revenue for the Treasury.

Angela Eagle: I am happy to deal with the issues when I respond to the debate, but I say now that it will be helpful for all of us, for all sorts of reasons, if we did not mix up counterfeit with genuine, legally available cigarettesthe two need to be thought about separately. That would help us deal with some of the issues raised by the hon. Gentleman.

Greg Hands: The Exchequer Secretary raises an important point, but to be fair, neither my hon. Friend nor I were mixing up the two. In terms of the actual impact of the amount of tar, I was saying that it would be difficult to effect some kind of generalisation because some fake brands do not tell us on the packet how much tar there is.

Angela Eagle: The fake brands do not always contain what they say they do, which is why it is important to separate the cigarettes made and sold legally from the counterfeit products. They are totally separate, and we will have a much clearer and more focused debate if we do not mix the two up.

Greg Hands: Of course the Minister is right, but she is making my point for me. In response to my hon. Friend, I pointed out that it was difficult to effect some kind of generalisation about the overall tar content for all the cigarettes that are consumed in the UK. Due to those varied considerations, she is helping me to make my own point.
The nub of the matter is that the Government could have addressed the weaknesses of the pre-Budget report in the Bill. The Budget was an opportunity to replace a temporary measure with a sensible, overall structure. Unfortunately, they appear to have missed the chance. The Government can still consider re-balancing the structure of taxation in January 2010, when the VAT rise kicks in. I will be grateful if the Minister can confirm whether the Government intend to leave the ad valorem duty at 24 per cent. in January 2010. As I said, the rise in VAT will increase the tax on cigarettes by more than the VAT itself.
An argument could be made for that position, but why would the Government want to nurture super-low price brands at the expense of premium brands? I am interested in the Ministers argument as to why she thinks that that should be the case in our tobacco duty structure.
It also, as I said, conflicts with the Governments own reasoning in their response to the EU consultation. There is already a significant move in this country to low and super-low price brands from premium ones. According to ACNielsen, the market research company, the market share of premium brands has fallen from 28.5 per cent. to 25.9 per cent. in just the past two and a half years, between 2006 and 2008. Meanwhile, the super-low market share has gone from 41.6 per cent. to 45.1 per cent. in the same perioda pretty big increase in less than three years. That is most likely due to the changes in tax. Indeed, the tax differential between premium and super-low brands has increased from just 10 per cent. at the beginning of that period to 14 per cent. nowquite a significant change in a tax differential.
It is worth thinking about the impact that all that has on tax yields. For every 1 per cent. of consumption that trades down from premium to super-low brands, the Government lose approximately £11.5 million in tax revenue.
It is worth looking at the EU consultation and directive again in more detail because it will dictate the future of the tobacco duty regime in this country. The Commission, when setting out its consultation, broadly suggested four areas that it might pursue. The first one is replacing the most popular price categorythe MPPCwith weighted average prices as a reference point for the whole European Community, claiming that it would address health objectives in a more efficient manner. It is saying that there should be higher specific duty, which is the point I started with. Secondly, it talks about aligning the taxation of cigarettes and fine cut tobacco or roll-your-own or hand-rolling tobaccoHRT as I believe it is calledto reduce the substitution effect. In other words, people give up smoking ready-rolled cigarettes in favour of hand-rolling tobacco. Thirdly, it talks about increasing the minimum rate requirement for cigarettes and fine cut tobacco to combat illicit tradingwhich we have already talked aboutand to address health concerns, and finally amending the existing definition of cigarettes, cigars and pipe tobacco to deter tax avoidance and evasion.
In the light of the EU consultation, there are broadly seven proposals in the draft directiveindeed, abolishing the MPPC as the reference point, which is good news for those who prefer a higher rate of specific duties, with the alternative of a cash minimum to be applied to all cigarettes, not just to those in the MPPC, of around £50.50 for 1,000 cigarettes. It would not affect the price in this country because we are already above that. There are various other suggestions. I would be grateful to hear from the Minister what response the Government had made to the draft directive, which was cleared by the European Scrutiny Committee last autumn.
On a related topic, I wonder whether the Minister has looked at what various EU members do and what consideration she has given to a minimum duty on tobacco products. That is not a minimum price but a minimum level of duty. Twenty of the 27 EU countries already have such a scheme. Ireland, for example, has a minimum duty. What consideration has she given to the Irish experience? In Sweden and Denmark, having a minimum level of duty actually raised tax revenue because it made cheaper brands more expensive, thereby increasing the overall tax revenue because the ad valorem part, the specific duty, would take in moreand indeed the ad valorem. It closes the differential between the cheaper brands and the premium brands and, in Sweden and Denmark at least, it showed an increase in tax revenue. It might also curb the increase in lower-priced tobaccos and thereby raise more duty. I would be grateful to hear whether the Minister had looked at the experience, in particular in Ireland, but also in the other 19 EU countries that have such a system.
Turning from the structure of tobacco taxationalthough the structure does bear on my next questionwe need to ask how close further duty increases will take us to the revenue maximisation point with tobacco duty. The Minister admitted in last years Finance Bill debates that we were close to this point, and I think she said the same in relation to the PBR and the debate on the statutory instrument in January this year that resulted from the PBR. In the Committee of the whole House the Minister talked about whether we might have reached the tax maximisation point with tobacco. We now have another increase, with a further increase in prices expected as a result of the VAT rise in January 2010. It would be helpful to have her current view on revenue maximisation. Discussing the PBR changes in the debate on the statutory instrument in Januarywhich raised the ad valorem element from 22 to 24 per cent.she said:
If we are close to revenue maximisation, we might go closer to or just beyond that point and, in that context, there is a risk that smuggling might undermine the helpful revenue benefits of the real increase in tobacco taxes.[Official Report, Second Delegated Legislation Committee, 13 January 2009; c. 22.]
We acknowledge that progress has been made on smuggling. HMRC and UKBA have a joint strategy, although the tone of last years launch document was perhaps a little self-congratulatory given the levels of illicit tobacco that remained in this country. For example, when discussing hand-rolling tobacco, as loose tobacco is normally termed, the document put the illicit market share at a huge 53 per cent. Its estimate of a 13 per cent. illicit share for the much larger cigarette market also needs to be placed in context.
Imperial Tobacco, for example, suggests that 37 per cent. of the cigarettes smoked in the UK fall outside the UK duty regime. When we are debating the amount of duty that we might be taking in, that is an incredible amount. Imperial Tobacco, which is, I think, one of the largest three or four tobacco manufacturers, suggests that 37 per cent. of what is smoked in this country does not have UK duty paid on it. In other words, for more than one in every three cigarettes, the Treasury gets absolutely nothing. Clearly many of those are not illicitthe Minister was right to draw that distinctionbut they all represent lost revenue to the Treasury.
We should also consider the effect of the exchange rate. Some of the pressure on tobacco imports of all kindsillicit and legalhas been eased by the fall in sterling, which has meant that super-low brands have become cheaper in the UK than in France. That must be the first time that that has happenedcertainly for 20 years, but perhaps ever since tobacco was discovered in the 17th century. Thinking about all-time historic changes, it is worth remembering that, at the moment, sterling is very close to its historic low against the euro and its predecessor currencies, such as the French franc.
We are living in interesting times, but we cannot rely on sterling remaining very low against the euro to reduce tobacco importation over a long time. I do not think that smuggling has been stopped or eliminated. We have to be aware of that. I would be interested to hear the Ministers views about what the Government are doing. It would also be interesting to know what effect the Government think any significant recovery in sterling would have on the joint smuggling strategy and wider policy.
Another area of revenue loss that we should examine is the new threat of so-called non-domestic brandsor cheap whiteswhich we mentioned earlier. Those are brands that are not counterfeits, but that resemble those available in the UK. They are what I call in vernacular terms fake brands, which are ostensibly manufactured for the home markets of the countries in which they are producedeastern Europe, Russia, China and elsewhere. Duty is often paid in those countries, even though it is never intended that those products will be consumed there. Anybody who knows anything about tobacco duty will know that it is very low in countries such as Russia and China. It can still make sense to produce the product there, even though it is intended for export from the very beginning. However, instead of being smoked there, after manufacture, the cigarettes are either smuggled directly to countries such as the UK, or moved legitimately via other hubsparticularly Poland, but also Germanyfrom where they find their way here.
Last November, which is the most recent month for which I have data from HMRC, interestingly, 47 per cent. of seizures were of those cheap whites. They are a significant part of the non-UK duty paid part of the cigarette market. I do not know whether other members of the Committee have come across those fake brands, but the industry is finding an ever-increasing number of those cheap whites when it conducts pack sampling of the rubbish left behind at events such as football matches and concerts. That might sound like an obscure thing to refer to, but it is standard practice in the cigarette industry to do pack sampling exercises. People from the industry go to somewhere where there has been a big assembly of people and look at the detritus left behind.

Graham Stuart: My hon. Friend is giving a fascinating exposition on a subject on which he is clearly an expertdoubtless he will build on his expertise. Has he ever considered or will he consider joining one of those pack expeditions, so that he can see for himself how it is done?

Greg Hands: I have left my smoking days behind me, but I think it would be quite interesting. I have seenas I am sure those involved in the issue and the Minister haveexamples of what those packs look like. Superficially, they appear convincingly like a real brand of cigarettes and I suppose, in a sense, they are a real brand of cigarettes. Nevertheless, one packet in particular seems to be deliberately designed to look a little bit like Benson and Hedges Gold. If I were given the option, I would take up the offer of joining such a visit.

Jeremy Browne: Further to the previous intervention, has the hon. Gentleman done any research on the propensity of supporters of different football clubs to smoke non-branded or misleadingly-branded items? Indeed, if he wishes to cast aspersions on organisations other than football clubs, does he know whether those people who go to pop concerts are more or less likely than football supporters to smoke cigarettes that are inappropriate?

Peter Atkinson: Order. May I ask the hon. Member for Hammersmith and Fulham not to be led down that path?

Greg Hands: Thank you, Mr. Atkinson, for what I am sure is very correct advice.
I was interested by a piece in the Manchester Evening News last week about myself and the hon. Member for Taunton. Some journalist on the newspaper does a count of the number of words that MPs use that might be used by people in Manchester when talking about their everyday lifestyles; I think that that is the point. There is a word count of the use of words such as beer and football. I must say that the hon. Gentleman did extremely well. Normally, he features quite heavily in the newspaper. On this one occasion, however, thanks to my marathon speech on beer during a Committee of the whole House he was trumped completely.
I know that I am testing your patience, Mr. Atkinson.

David Gauke: For clarification, it might be useful to say that, as I understand it, the Manchester Evening News word count process applies only to the main Chamber.

Peter Atkinson: Order. The hon. Gentlemen are testing my patience now.

Greg Hands: I will not respond to that last intervention.
Returning to the issue of cheap whites

Mark Hoban: Will my hon. Friend give way?

Greg Hands: Yes, of course.

Mark Hoban: I know that my hon. Friend is just limbering up on this topic. [Laughter.] However, can he clarify whether the sale of these fake brands or cheap whites is legal or illegal in the UK?

Greg Hands: That is a very interesting question, which I hope the Minister will respond to in due course. It is a very interesting question about how we control this level of activity. The person who has imported the produce is almost certainly committing an offence. However, it is unclear if the person at the point of sale is also committing an offence. I am told that most of the sales of these goods happens in places such as pubs or street markets. I would be grateful if the Minister gave a precise explanation of what illegalities have been committed in the sale process and, if there have been any, when and by who?
Returning to the issue of cheap whites, I am told that a brand called Jin-Ling is the most prevalent, but there are dozens of different brands. Oddly enough, it appears that smokers who buy their cigarettes on the black market still appreciate a bogus aura of authenticity, which I have already referred to by giving the example of the lookalike B&H product.
Some of the eastern European manufacturers of these products oblige their customers by replicating the UK health warnings on the packet. I am not sure what that says about the effectiveness of the health warnings. However, it will be interesting to see if these manufacturers stop copying the health warnings when they start to include images, which I think will be used in due course.
So, non-domestic brands are a serious problem. They cannot be tackled through the agreement of the big UK suppliers that has helped to bring down the quantities of illicit tobacco in recent years. Getting the Governments who host these non-domestic brand manufacturers to take action is difficult, but it will be crucial.
Again, I will just give the example of Jin-Ling, which I think is manufactured in Kaliningrad. That itself raises an interesting question. Kaliningrad is part of the Russian Federation but it has a very interesting legal structure. I know that, having been there. I will not stray into the realm of discussing my wifes family, but I happen to know a fair bit about Kaliningrad. Consequently, I would be interested to know what representations the Minister, or the Foreign Office on her behalf, have made to other countriesnot only Russia but Polandabout strengthening the border controls near Kaliningrad, with reference to tobacco smuggling.
There is another interesting question. Which Governments have duty receipts that far outstrip the domestic consumption of these brands? That should certainly act as a warning signal for those countries; they will know at that point that they have a problem.
I know that the Treasury is aware of this issue and the joint smuggling strategy, published by HMRC and the UK Borders Agency in November, identified it as the key threat in the future. It would be helpful if the Minister could outline what steps have been taken since November in relation to the products countries of origin.
Returning to the structure of tobacco taxation, there are important questions outstanding to which we are owed a response. First, why have the Government seemingly reversed their own policy on ad valorem duty? Secondly, do they recognise the problems that has caused and which, in effect, they predicted in their submission to the European Commission? Thirdly, why did they not address them in the Bill? Fourthly, will they re-band the structure of cigarette taxation in January 2010, when VAT is raised again?
Ironically, the Commissions draft directive supports the shift towards specific duty that the Government outlined in their submission. The draft calls for minimum rates of taxation to be increased and proportional rates to be lowered. In conclusion, do the Government still want what they asked for when they made their submission to the EU as part of their consultation in 2008?

Jeremy Browne: I feel there is not much that I can add to that rigorously researched contribution, although I thought it was thin on the different types of tobacco manufacturing in different parts of the Russian Federation. I would have appreciated greater detail before deciding whether I wish to support clause 12, but I will have to operate in the dark, so to speak, and make that decision less well informed than it might otherwise have been.
I will ask three brief questions. The first is on the issue drawn out at length by the hon. Member for Hammersmith and Fulham: differentials between premium brands and lower-price brands. He put figures on them, butanecdotallyone can see displays of cigarettes in shops and the prominence afforded to the lower-price brands compared to 10, 15, or 20 years ago, when the big household name brands such as Marlboro would have been more prominent and consumed more space on retailers shelves. That is a serious problem, partly because young people who wish to smoke more are likely to be drawn to the lower premium brands for price reasons, and partly because the Government are losing revenue even if the total number of cigarettes sold is the same. The Minister needs to address that.
The second issue is smuggling. The hon. Member for Hammersmith and Fulham estimated that 37 per cent. of cigarettes smoked in the United Kingdom had not had UK duty paid on them. Some of those cigarettes would have been entirely properly brought into this country by someone returning from holiday, for example, but it is well known that a large number of cigarettes are smuggled into the country. A number of problems associated with that. One is that the Treasury makes no revenue on those cigarettes at all. The other problem is that smuggling penalises legal retailers of tobacco.
It must be extremely galling to sell cigarettes and comply with the law only to have someone outside the shop or round the corner selling the same cigarettes, or a very good replica, at a substantially reduced price, which risks putting the conventional retailer out of business. Even though it ought not to be a temptation, the inducement is for legal retailers to sell non-legal smuggled products under the counter. They might conclude that they would like to have a share of that market. If all the people in that locality buy cigarettes illegally, the only way that retailers can remain viable as a business is to seek to move into that illegal part of the market. That puts them in a severe moral quandary, and I do not want people put in that position.
If the Government decide that all cigarette displays are illegal, all cigarettes will be sold under the counter. There will probably be even less differentiation between smuggled, illegal cigarettes and legal cigarettes, when all are being bought in such a surreptitious way. The inducement to behave improperly, however regrettable, will probably be greater.
I note that the Minister and the Government talkalwaysabout measures to strengthen border controls, inspections and so on. That is important, but it would be interesting if the Minister also engaged on the question of price, because the biggest inducement for anyone to smuggle, or to behave improperly in any other area, is the financial incentive for doing so.
I would be interested if the Minister touched on what was not covered by the hon. Member for Hammersmith and Fulham, who had to cut short his remarks and was therefore not able to cover all the groundthe impact of the duties in clause 12 on different income groups. The Minister touched on young people, who tend to have less money than middle-aged smokers, but I would be interested to know his assessment of the impact of clause 12 on the top decile by income, as opposed to the bottom decile.
My suspicion is that the duty brought about by clause 12 and similar clauses in previous years has a much more profound effect on people in the bottom decile, certainly in terms of the percentage of their overall disposable income, but I suspect even in absolute terms. That has a social impact on those people. It may be that the Minister regards the adverse impact on peoples finances to be justified in terms of the beneficial impact on their health, but there are problems with trying to effect behavioural change through pricing. Everyone recognises that, whether the attempt is made through congestion charges in London or the pricing of tobacco products, the economic impact on people with low incomes can be profound. I would be interested if the Minister touched on that point as well.

Angela Eagle: Albeit late in the day, as it has taken a day or so to get to my first response in the Finance Bill Committee, I welcome you to the Chair, Mr. Atkinson, probably just as you are dreaming of getting out of it as quickly as possible after a day of duty.
Clause 12 increases the duty on cigarettes and all tobacco products by 2 per cent. Together with VAT, that will add 7p to the price of a typical packet of 20 cigarettes and 3p to a pack of five cigars. The clause also puts into legislation the increases in tobacco duty announced in the pre-Budget report. Tobacco rates will remain unchanged after the VAT rate returns to 17.5 per cent. in January 2010.
Before I go on to answer some of the specific points made in the debate, it is wise to put on the record that smoking is the biggest single cause of preventable illness and early death in the UK. It contributes significantly to inequalities in life expectancy, which the hon. Member for Taunton may take as a signal of my response to the last of his points. Maintaining high levels of tobacco duty, alongside continuing action to clamp down on the threat of smuggling, is a proven part of the Governments strategy to reduce smoking prevalence. Tobacco is also an important contributor to public finances.

Graham Stuart: We have heard varying figures, such as Imperial Tobaccos that 37 per cent. of the UK market consists of cigarettes on which duty has not been paid in the UK. Have the Government looked at where illegal cigarettesin the social deciles that the hon. Member for Taunton referred totend to be bought and sold? In other words, could it be that illegal cigarettes are going to a particular area of society and perhaps exacerbating the health impacts and social injustices?

Angela Eagle: There is more than one sort of illegality. There are counterfeit cigarettes and those that have been smuggled in, and they are not always the same. Legally produced cigarettes are smuggled but they are also brought into the country legally through cross-border shopping. There are also counterfeit goods, which, given the lack of assurance about what has gone into them, we would prefer were not available at all. There is a range of issues.
The only way of knowing in detail where the illegal product ends up is by undertaking the surveys that the hon. Member for Hammersmith and Fulham talked about earlier, and some spot checks. There are various ways to attempt to get a handle on what by its essence is an illicit phenomenon and come up with a reasonable idea of its scale, but there are no Office for National Statistics figures on counterfeit products.

Graham Stuart: Can I come back again?

Angela Eagle: When I have finished answering the hon. Gentlemans initial question, I shall of course let him intervene again.
There are no rigorous official statistics about such things simply because the phenomenon is illegal and underground. All we can do is have surveys carried out. We all probably have our own view, because we have had particular experience of what is going on in our constituencies or what is available in the communities in which we live.

Graham Stuart: The Minister is making a very fair point. If smuggled cigarettes were being used more extensively by the lower income decile groups, putting up duty could, in fact, exacerbate that tendency and thus the likelihood of such people, who are particularly vulnerable to all sorts of other social and health problems, to increase their smoking. It is a matter of teasing out whether the Government have looked at the matter seriously and whether it could be an issue, because it would go against all policy if it turned out that the most vulnerable in our society were ending up more likely to smoke as a result of the Governments policy, which all of us here were thinking did the opposite.

Angela Eagle: That point overlooks the overall fact that all smoking is dangerous to health, whether one smokes premium brands, cheap brands or counterfeit brands. The Governments policy is designed to reduce and minimise the number of people who smoke.

Jeremy Browne: The previous intervention was good. People in higher income deciles might carry on smoking premium brand cigarettes, and that would be easily measurable through official statistics. However, if cigarettes bought legallyeven lower premium brandsbecame prohibitively expensive for people on low incomes, there may seem through official statistics to be have been a reduction in smoking propensity in low income deciles, but those people may actually be smoking more because they are financially induced to buy smuggled or illegally produced cigarettes that are not showing up in official statistics. That is the point that was being made, and it is worthy of a reasonable answer.

Angela Eagle: I have two observations to make. One is that the way we measure the amount of smuggled or counterfeit products on the streets is not the same as the way we measure smoking prevalence. In other words, we know about smoking prevalence from social surveys carried out by ONS, but we do not always have detailed knowledge of precisely what brands are smoked. Some tobacco companies undertake their own surveys with respect to that, and we receive pieces of information that we put together to make an overall picture. I understand the hon. Gentlemans point, but we should focus on the larger issue because we wish to discourage people from smoking altogether and not lose sight of the big picture.

Graham Stuart: It is not the same point.

Angela Eagle: Of course not, but reducing the prevalence of smoking is the best way to tackle those inequalities, particularly in life expectancy.

Greg Hands: I am not sure whether the Minister has really got to the heart of my question: is it Government policy to try to narrow that differentialto increase the specific amount of dutyor is it their policy to widen that differential by increasing the ad valorem part? At the moment there are conflicting signals between what they said in their response to the EU consultation and what they did in the PBR, so which is it?

Angela Eagle: I was going to come on to that. If the hon. Gentleman and other Opposition Members would let me get on, I might be able to answer some of the questions that the hon. Gentleman asked in his speech. First, though, I should like to congratulate him on being an ex-smoker. It is always an achievement when addictions are overcome, and I am glad that he has managed to move into the category of ex-smoker.

Greg Hands: I thank the Minister for her congratulations. Coming from the hon. Lady, who is described as a saint in The Daily Telegraph today, I take that as a real tribute.

Angela Eagle: I hope that many others who smoke will follow the hon. Gentlemans example.
The hon. Gentleman talked about the difference between the ad valorem and the specific elements of the current tax on tobacco. There is a point about sequencing. He quoted at great length from the consultation document issued by the Commission and our response to it. We are trying to change the structure of EU directives on tobacco to deal with some of the points that he made and to try to ensure that the specific element becomes more important than the ad valorem element. To do that, we have to persuade all member states to agree to change the directive. For the reasons that he read out as part of the Government approach to this renegotiation, that is clearly extremely important. However, while we attempt to achieve that very desirable shift, we have to work within the current directives.
When the changes were announced at the PBR, they were, as the hon. Gentleman pointed out, designed to try to keep the price of tobacco as broadly neutral as possible in the context of a temporary VAT cut. VAT is an ad valorem tax, and we got the closest fit to achieving the price stability that we wanted in that context by using the ad valorem parts of tobacco tax.
If we are successful in the EU directive negotiations, we want more concentration on the specific element of tax on tobacco across the whole of the EU, not just in the UK. For the reasons that the hon. Gentleman quoted, it makes sense for us, as a Government, to put the matter to the EU Commission as part of that process. We will be able to make progress there, but he must recognise that there are 27 EU member states, with different tax rates on tobacco and many different approaches. The hon. Gentleman is a member of the European Scrutiny Committee, so he will know that trying to get agreement on EU directives is sometimes quite difficultit can be like herding ferrets, especially where tax is concerned. However, we are doing our best to come up with a structure for tobacco tax that allows us more successfully and accurately to pursue some of the social and health issues that we talked about.
The hon. Gentleman asked whether we had thought about minimum excise taxes. Our lowest taxes are much higher than a lot of the minimum taxes in the EU. We are negotiating within Europe to give us more flexibility to levy a higher proportion of specific duty on cigarettes, as we wish to do. We are awaiting the development and evolution of those negotiations and their outcome before deciding how to change the structure of our own cigarette duties.

Greg Hands: Can the hon. Lady answer the question about the PBR and the 2 per cent. ad valorem rise, on which we will also vote today? Surely the Treasury could have structured a rise in specific duty that would have raised the equivalent sum across the whole sector on a revenue-neutral basis, because it still appears that the ad valorem rise is entirely contrary to the policyat least, the policy submitted to the EU and that she has just outlinedthat she wants, which consists of a higher specific duty and lower ad valorem.

Angela Eagle: As I mentioned earlier, because VAT is an ad valorem tax, as is that part of tobacco taxation, when trying to have a simple approach to a temporary reduction in VAT, it makes sense to deal with it in that way, which is what we did.
The hon. Gentleman also mentioned revenue maximisation. It is certainly true that we would wish, as a matter of policy, to be somewhere around revenue maximisation, and he is right to quote the statements I have made in that context on earlier occasions in relation to previous pre-Budget reports and Budgets and in Committee. However, there are indications relating to our judgment, which is based on the available evidence, that we are close to that point, but can still expect some increase in revenue from the increases in clause 12. Some of those indications are: a strong receipts performance, a falling tax gap and a continuation and tightening of the anti-smuggling strategy. The hon. Gentleman mentioned another indication: the weak pound and the reduced demand for overseas travel, which change the elasticities around revenue maximisation calculations. Our best assessment is that we have not yet gone beyond revenue maximisation, but I have always made it clear that, as a matter of policy, we wish to stay as close to that as possible for the social and health reasons we talked about earlier.

Greg Hands: I thank the Minister for being so generous in giving way. She said we have not reached maximisation point, but are quite close. It sounds as though she has a fixed idea of where that point is. It would be helpful if she would share that with the Committee.

Angela Eagle: I have just told the hon. Gentleman that the elasticities have changed and mentioned three of the reasons why, so the point is not fixed. Analysis of our receipts performance, what is going on elsewhere and the impact of those changes, such as the scale of smuggling and the strength of the pound, are all relevant. I have just gone through some of the factors that can be brought to bear when calculating the elasticities, so it is not a fixed point. We analyse it when we are doing our revenue calculations and do not just pluck it out of the air. We believe that some of the changes I have mentioned have had an impact on elasticities and allowed us to increase the duty rates without going beyond revenue maximisation. We always keep those calculations under analysis as we consider what future duty rates should be.
The hon. Gentleman talked about cheap whites. There is a limit on the import from non-EU countries of cheap whites for own use of 200 cigarettes per person, meaning individuals who come across the border with their own shopping. Commercial imports need to be properly imported with duty paid through excise warehouses. We therefore ensure that they have appropriate health warnings, as required by UK law. Goods not in either of those categories are classed as smuggled, and that is how the breakdown of cheap whites that are available or that one might come across at ones local football match would be categorised.

Greg Hands: Will the Exchequer Secretary clarify that? For example, when the Jin Ling, which is the most popular of the cheap whites, comes from Kaliningrad to the UK via Poland, at which precise point do the Government try to intervene? What discussions has the hon. Lady had with the Polish authorities? Surely one of the problems is that, as Poland is in the EU, the intervention could also happen at the EU external border.

Angela Eagle: It would depend on who brought in the pack of cheap whites and why. If they were imported via Poland, they would be dealt with at the excise warehouse. If the hon. Gentleman brought a pack ineven though he has given upafter visiting some of his family in Kaliningrad, he would be allowed 200 sticks before having to pay duty. Anything else that appears is smuggled.
The hon. Member for Taunton asked about the differential between premium brands and lower-priced brands. I understand his point. There is often switching, and even now we could say that there would be switching from potentially counterfeit to cheap, up to premium brand or not. We have to be aware of that and look at how it is going, but I emphasise that Government policy is to try to reduce the prevalence of smoking of any brand. That is the aim of the excise duty policy in clause 12.
The hon. Member for Hammersmith and Fulham asked about statistics and wondered whether it is true that one in three cigarettes smoked in the UK fall outside UK duty paid. Our statistics show that 13 per cent. of cigarettes smoked in the UK are smuggled and 8 per cent. are from legal cross-border shopping, so one in fivenot one in threeare outside UK duty paid. We must never be complacent about our ability to tackle smuggling but we have made good progress, often reaching targets years in advance and regularly discovering and destroying 2 billion to 2.6 billion cigarette sticks a year. That is our new target. We have made seizures of around 1.8 billion sticks, which is rather a lot, and, believe it or not, 450 tonnes of hand-rolling tobacco. We are getting the figures of smuggled cigarettes down, but it is a constant battle, which the UK Border Agency and Her Majestys Revenue and Customs are fighting well. In answer to the hon. Member for Hammersmith and Fulham, we co-operate a lot with our colleagues in other countries to protect borders as best we can.
Finally, the hon. Member for Taunton asked about the distributional effect. The best way to reduce the impact of duty increases, distributionally or otherwise, is to reduce smoking prevalence, which is why a lot of the work that is being done by health authorities to offer assistance and free Nicorette patches to those who wish to give up is having an effect. We have already dramatically reduced smoking prevalence and seek to drive it down further. Clause 12 and the changes in duty before us are one part of that, and I commend them to the Committee.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Rates for 2009-10

Question proposed, That the clause stand part of the Bill.

David Gauke: As my hon. Friend the Member for Hammersmith and Fulham did on tobacco, I shall curtail my remarks on clause 13, on the basis that we have already debated vehicle excise duty for next year in Committee of the whole House. I have some fairly narrow points on clause 13.
It is, of course, a fact that the Government have significantly changed their position. I made that point last week. Much of the credit for that shift must go to my hon. Friend the Member for Putney (Justine Greening), who has done sterling work. I pay tribute to her once again.
I have been comparing the VED bands implemented by the clause with those set out by the Government. It is not entirely fair to use that announcement as a baseline and then compare pluses and minuses and say where there are increases and reductionsit is a trick of the Prime Minister to do that in other contexts, and I do not want to go down that route. However, by comparing what was announced in the 2008 Budget with what we have now, I note that vehicles that emit 150 g/km are being charged more than was originally proposed, while those that emit more than 150 g/km are being charged less.
It might be helpful if I give the Committee an example. Under proposals in the 2008 Budget, a car that emits 130 g/km would pay £90 VED under the provisions in clause 13. Now, the VED payable on that car is £120, which is £30 more. Equally, we could find examples for higher-emitting cars where there is a reduction in the VED to be paid if we use the 2008 bands as our baseline.
Will the Minister set out how many motorists will lose and how many will win when comparing those two measurements? Using the same test, and comparing what was announced last year with what we have now, it is clear that the measures are beneficial to those cars that emit more.
I do not want to overstate the environmental arguments because there are none, at least according to the Governments figures. It appears that the change in VED announced last year will have a very, very small impact on the total amount of CO2 emitted. Nevertheless, when the proposals in the 2008 Budget were announced, the Chancellor stated that there was a need for an incentive to encourage drivers to choose the least-polluting cars, and one could argue that that incentive has been diminished. I do not want to overstate the point, as the environmental impact of what was announced in March 2008 appears to be so minimal that unwinding that announcement cannot, I assume, cause any harm. Nevertheless, I would be grateful for the Ministers response on that.
By comparing the Red Book for the 2009 Budget with that of last year, I note that last year the VED reforms for 2009-10 were due to raise £465 million. The Budget announcement for 2009, which uses that as the baseline, has largely been unwound. The cost of using that baseline is £475 million£10 million more than was going to be raised.
Why have the Government continued to introduce the banding on the basis of CO2 emissions this year, even though they have largely unwound the position set out in the 2008 Budget? They are not making a particularly environmental case for the reform of VED.

Angela Eagle: Will the hon. Gentleman give way?

David Gauke: I am about to sit down. I might well be satisfied by the Exchequer Secretarys arguments for the introduction of this process, but it appears to have cost £10 million. We could just have returned to the system we had before. It would be helpful if she could explain that point. Subject to those questions and given that we debated VED at some length in the Committee of the whole House, I have no further remarks.

Angela Eagle: Clause 13 will change vehicle excise duty rates for cars and vans from 1 May 2009. It follows the introduction of a system of banding for VED on the basis of carbon dioxide emissions that provides a signal to motorists about the environmental impact of using cars. The system applies to cars registered from 1 March 2001 onwards. The signal has succeeded in contributing to a fall in the CO2 emissions of new cars of 17 per cent. since 1997. Other things have contributed to that such as new engine technologies and new regulations. Road transport still accounts for 20 per cent. of all UK emissions.
By the 2008 Budget, there was a clear case for further reform of VED. We therefore announced the increase in the number of VED bands from seven to 13 in 2009 to strengthen the incentive to choose the best in class. The 2008 pre-Budget report confirmed those reforms to the structure of CO2-based VED, but announced that to help motorists during the economic downturn, rates for all cars would go up by no more than £5 in 2009 and that rates for cars emitting less than 140 g of CO2 per kilometre would be frozen. Budget 2009 confirmed the announcements in the pre-Budget report.
The Government are committed to moving towards a low-carbon transport system through the introduction of measures that support the development of green technologies and that provide the right signals to encourage efficiency overall. The reforms to CO2-based VED will allow the system better to reflect changes in the fuel efficiency of vehicles and will provide a greater incentive to drivers to choose a lower carbon car. It is estimated that the reforms will save about 1 million tonnes of CO2 by 2020. That will support the UKs broader aim of reducing transport emissions.
The measure does not apply to cars and vans registered before 1 March 2001 because comprehensive data on CO2 emissions are not available for those vehicles. Instead, VED will be set at two rates based on engine size, as under the old system. There will be a higher rate for vehicles with larger engines and a lower rate for those with smaller engines. The clause will increase both rates by £5, which is in line with changes to VED rates for post-2001 cars. That is the basic structure of what we are doing.
We are introducing VED bands because we believe that it is the right structure to move towards. However, because we recognise that people are under pressure during the recession and we do not want to add to it, we have made modest changes this year, such as the £5 increases and the real-terms freezes. In future there will be a role for the 13 bands, but a more stable and simple approach is appropriate in this years economic conditions.

David Gauke: The Exchequer Secretary said that the changed approach to VED was a consequence of the economic conditions. Another Government response to the economic conditions that relates to motoring is the car scrappage scheme. If Mr. Atkinson indulges us, will she clear up the confusion over VAT and car scrappage that seemed to undermine the scheme on its first day?

Angela Eagle: First, there is no confusion over VAT and car scrappage. The problem, as I understand it, is that two companies, Ford and Nissan

Peter Atkinson: Order. I am sorry to stop the Exchequer Secretary, but this whole issue is very wide of the clause.

Angela Eagle: It is frustrating to have to answer the question asked by the hon. Member for Fareham without being able to go into it.

Peter Atkinson: Answer it quickly.

Angela Eagle: I will. The confusion, as I understand it, was about whether the manufacturer could demand that its dealership made part of the £1,000 payment, which the manufacturer was meant to make. The Government and the manufacturer pay £1,000 each, but there was some dispute about how that should work out for the dealerships. It was not a VAT issue and the problem has now been resolved. The scrappage scheme is going ahead, and it is attracting a great deal of interest. We hope that it will support the car industry at this very difficult time.
With that quick explanation, I hope that hon. Members will support clause 13.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 15

Rates and rebates from Spring 2009

Question proposed, That the clause stand part of the Bill.

David Gauke: Fuel duty was debated at some length on the Floor of the House, and I have no intention of running through the whole argument again. However, I should like once again to put on record our concern at how the Government address it. Sometimes, fuel duty announcements are postponed and postponed again, and it is then unexpectedly increased. We have seen a great deal of evidence of that in the past couple of years.
Clearly, the Government feel that they have the political ability when oil prices are lower to raise fuel duty, but it is difficult for them to do so when oil prices are higher.

Jeremy Browne: I differentiate future duty increases and those that have already been implemented. What cumulative losses would the Exchequer have incurred, and what consequent increases in public debt would have resulted, if the Conservative-Scottish National party vote on the Floor of the House not to proceed with the April 2009 duty increase had been successful? The policy would obviously have had an impact on the public finances as a whole.

David Gauke: We voted that way on the Budget resolutions, as was made clear by my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), because the way in which the Government addressed fuel duty was lacking a coherent structure. They have increased it and decreased it, and not implemented previously announced proposals. We have advocated, as we said on the Floor of the House, a fair fuel stabiliser. Given that we have debated the policy before, I have no intention of offering another detailed explanation.

Jeremy Browne: I am not seeking to debate that Conservative policy again, but I wanted to make this specific point: the Government may or may not have a coherent policy for fuel duty increases, but surely any Opposition party that is even vaguely serious about assuming office would have made an estimate of the adverse impact on the public finances of voting against a duty increase that had already taken effect. It would have cost the Exchequer a certain amount every day, had the joint Conservative-SNP policy been successful. I cannot believe that anyone who wished to be in office would not have made that calculation and shared it with the Committee.

David Gauke: I am somewhat confused by the hon. Gentlemans position, given that his party voted against the September increase. I am not going to question him as to what the cost to the Exchequer of that would be. Our position on the Budget resolution reflected our concern about that lack of a coherent framework. I put that again on the record as an explanation for our vote on that Budget resolution. We have debated fuel duty before and, given the time, I have no intention of reopening that debate again.

Jeremy Browne: I shall make an extremely brief point because these subjects have been discussed at length. I wanted to expand briefly on the two interventions that I have just made. There is a difference between April 2009 and September 2009. In May, April has already happened and September has yet to happen. I do not know what the price of fuel will be in September, but I certainly knew in May what the price of fuel was in April. The decision, or otherwise, not to go ahead with September 2009 duty increases is not costing the Exchequer anything today, whereas it would have done if the Conservative-SNP amendment had been passed, because every single person at the pump today would be contributing less in taxation.

Angela Eagle: The ready reckoner is that every 2p rise is £1 billion a year.

Jeremy Browne: The patterns of demand could vary slightly throughout the year, but if one divided the figure by 365 one could get a daily clock running on the level of extra public borrowing that the Conservative party supports through this measure alone. I note that the SNP has lost interest in the subject, but the concern is that when we have a public deficit of £175 billion, no serious political party should vote with minority parties, from Scotland or anywhere else, to produce good publicity for election leaflets without regard for the public finances. I do not doubt that there are people in the Conservative party who have honourable intentions to go with their burning ambitions, but I fear that unless they have coherence to go with them they will end up being disappointed.

Peter Atkinson: Order. I think that the hon. Gentleman is referring back to a debate that we have already had. I shall be grateful if he can limit himself to the clause.

Jeremy Browne: I had no more to add, Mr. Atkinson. We have managed to get to a figure. It is helpful to cost the Conservative proposals, and we will now bear those in mind every time we hear any lectures or concerns expressed about the state of the public finances.

Angela Eagle: I suspect that we have just had the outline of a Lib Dem Focus leaflet. I am sure that hon. Members will look forward to seeing it coming through their doors soon.
The main fuel duty rose by 1.84p per litre on 1 April this year. Duty on rebated oils rose in proportion to the main fuel duty increase on the same date, while duty on road fuel gases increased such that the duty differential for compressed natural gas was maintained, but the differential for liquefied petroleum gas was reduced by 1p per litre. The clause also increases the duty rates for leaded petrol and aviation gasoline, with effect from 1 May 2009. Duty on leaded petrol will increase on that date by 1.84p per litre and duty on avgas will increase by 2.31 pence per litre. I felt that I had to get that on the record.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill

Ordered, That further consideration be now adjourned. (Mr. Blizzard.)

Adjourned till Tuesday 2 June at half-past Ten oclock.